Our new ‘Survey of recent developments’, by Anton Gunawan and Reza Siregar, focuses mainly on the two major elections and the increasingly severe global financial crisis (GFC) that will dominate politics and economics in Indonesia in 2009. The parliamentary and presidential elections that will determine Indonesia's political make-up for the next five years are expected to run smoothly, but the potential impact of the GFC provides much greater cause for concern. Its repercussions in Indonesia have been relatively mild so far, but there was a noticeable deterioration in some key economic variables toward the end of 2008. Investment growth slowed and export demand declined in the fourth quarter, although the impact was largely offset by strong government spending and a big decline in imports. In the financial sector, a sell-off of stocks and bonds, together with the associated capital outflow, resulted in a severe decline in the value of listed stocks, a considerable increase in the cost of financing the budget deficit, and a significant real depreciation of the currency. Bank lending began to decline as both banks and their borrowers became more cautious in the face of rapidly increasing uncertainty.
The government is clearly very conscious of the risks Indonesia now faces. It has introduced a range of policy measures intended to offset the impact of both declining world demand for Indonesian products and a flight to the safety of stronger banks and currencies on the part of investors. As in other countries, however, it has proved difficult to come up with a sound and coherent set of policy responses. Although the initial approach seemed to reflect concern about the balance of payments, the emphasis soon shifted to attempting to avoid a big decline in output and the widespread lay-offs of workers this would imply. A large fiscal stimulus package has been introduced, but there are reasons to be concerned about its individual components. Announcements about monetary policy have implied that it is now more expansionary, whereas the growth of system liquidity has in fact decelerated noticeably; the authors argue for greater monetary stimulus, but also draw attention to the risks this entails. Coverage of the government's guarantee of bank deposits has been widened to anticipate the possibility of a bank run, yet a large proportion of deposits are still not included.
Stephen Marks has contributed an interesting essay on the economic policies of former President B.J. Habibie, who came to office unexpectedly in 1998 when Indonesia's previous financial crisis forced his mentor, Soeharto, to step down. Although Habibie had been regarded as an economic nationalist rather than an economic reformer, the desire to differentiate himself from Soeharto led him to introduce a wide range of reforms, of which the decentralisation of fiscal and regulatory authority to local government level was–for better or worse–by far the most significant. Rapid stabilisation of the macro economy was clearly a remarkable achievement, but other policies and actions appear to have been driven by the desire to secure his hold on the presidency by way of an electoral victory, rather than to improve the functioning of the economy.
Sound data are an essential prerequisite to evidence-based policy making. Terry Hull and Wendy Hartanto provide a detailed discussion of important discrepancies in Indonesia's demographic database–specifically, in relation to fertility estimates derived from two contrasting methods of estimation: the ‘own-child’ and pregnancy history approaches. The pregnancy history estimates have given rise to concern in recent years that the gains achieved in Indonesia's family planning program over the last three to four decades are being surrendered. The authors argue, however, that this concern is unwarranted. When appropriate adjustments to these estimates are made, national fertility in fact turns out to be very close to the long-term policy target for 2010.
Indonesia is blessed with an abundance of valuable natural resources, but it is also cursed by its location on the ‘Pacific Rim of Fire’. In May 2006 these attributes came together to create a disaster of immense proportions: the Lapindo mudflow in East Java. Heath McMichael's contribution describes how mud and gases began erupting unexpectedly from a vent adjacent to a hydrocarbon exploration well. He outlines the unsuccessful attempts to staunch the mudflow, examines its environmental, infrastructure and economic impact, and discusses plans for its long-term management–together with the political obstacles that have held back progress so far.
Just a couple of years earlier, of course, Indonesia had experienced a devastating tsunami, which caused almost incomprehensibly vast loss of life and damage to physical assets. Craig Thorburn's paper presents the findings of a study of attempts on the part of Indonesian and foreign governments and non-government organisations to assist in the process of livelihood recovery in Aceh province in the aftermath of the tsunami.
In common with all other countries, Indonesia is vulnerable to the impact of climate change. It is also one of the world's major emitters of greenhouse gases as a consequence of large-scale logging of its vast forests. Ross Garnaut draws on his influential report to the Australian government on climate change to highlight the scope for Indonesia and Australia to play complementary roles in a global effort to reduce carbon emissions. He argues that this could serve as a model for cooperation between developed and developing countries in this field.
We have been delighted with the increasing flow of abstracts of recently completed PhD dissertations on the Indonesian economy and closely related fields, and now intend to include new abstracts in each issue of the journal, rather than in the December issue alone as in the past. Six abstracts of recently completed theses are included here.
The book review section presents another smorgasbord of new studies about, or relevant to, Indonesia. The works on Indonesia include an analysis of military financing; a conference volume on Islamic life and politics; and an assessment of the economy in 2008. Two additional reviews concern the functioning of labour markets and their relationship with poverty in Asia more generally; and external assistance intended to strengthen the role of the media in the developing world.
Selamat membaca!