Indonesia - Economic Policy
After he took office on October 20, 2004, President Yudhoyono moved quickly to implement a "pro-growth, pro-poor, pro-employment" economic program, which he has continued in his second term. The State Ministry of National Development Planning (BAPPENAS) released a Medium-Term Development Plan for 2010-2014 focused on development of a “prosperous, democratic and just” Indonesia. The Medium-Term Development Plan targets average economic growth of 6.3%-6.8% for the period, reaching 7% or above by 2014, unemployment of 5%-6% by the end of 2014, and a poverty rate of 8%-10% by the end of 2014.
President Yudhoyono’s economic team in his second administration is led by Coordinating Minister for Economic Affairs Hatta Rajasa. Sri Mulyani Indrawati continued as Finance Minister until May 2010, when she resigned to take a senior position at the World Bank. She was succeeded by Agus Martowardojo, a well-respected banker who had led Indonesia’s largest state-owned bank. In July 2010, Indonesia’s DPR Commission XI approved the appointment of Darmin Nasution as Governor of Bank Indonesia, following a 14-month vacancy of the position after former Governor Boediono stepped down to become Yudhoyono’s running mate. In May 2010, President Yudhoyono established a National Economic Committee to provide strategic recommendations to accelerate national economic development and a National Innovation Committee to provide input and recommendations to increase national productivity, create a culture of innovation, and speed up economic growth.
In May 2011, President Susilo Bambang Yudhoyono launched the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), to increase infrastructure and investment spending and to provide a roadmap for Indonesia to move up the value-chain and increase the level of innovation. The plan outlines Rp 4,000 trillion ($ 468.5 billion) in potential infrastructure projects in multiple sectors including hydroelectric and solar power, palm oil, new roads including toll motorways, mining , expansion of broadband internet, and nickel, cobalt and aluminum factories.
Indonesia's overall macroeconomic picture is stable. By 2004, real GDP per capita returned to pre-financial crisis levels and income levels are rising. In 2010, domestic consumption continued to account for the largest portion of GDP, at 56.7%, followed by investment at 32.2%, government consumption at 9.1%, and net exports at 1.6%. Domestic consumption has been the main growth driver from the expenditure side during the last half century while government consumption has hovered between 5-10% of GDP for most of that time.
In 2010, Indonesia has seen an increase in manufacturing output and exports, with relatively cheap labor and a complementary large and growing domestic market. Exports of natural resources, such as oil and gas, coal and crude palm oil (CPO) have made up around 50% of Indonesia’s exports and have been key drivers of growth. With the share of total exports to fast-growing emerging markets increasing and demand for commodities likely sustainable, export growth is likely to remain buoyant. In contrast, imports may grow even faster with infrastructure development andstrong domestic demand growth. ,. Net exports will likely continue to diminish and, with higher net income outflows (the counterpart to large portfolio inflows), it is expected the current account will eventually shift into deficit in the medium term.
Following a significant run-up in global energy prices in 2007-2008, the Indonesian Government raised fuel prices by an average of 29% on May 24, 2008 in an effort to reduce its fuel subsidy burden. Energy subsidies had been allocated Rp 223 trillion ($23 billion) in 2008, or 5.6% of GDP. The fuel price hikes, along with rising food prices, led consumer price inflation to a peak of 12.1% in September 2008. To help its citizens cope with higher fuel and food prices, the Indonesian Government implemented a direct cash compensation package for low-income families through February 2009 and an extra range of benefits including an expanded subsidized rice program and additional subsidies aimed at increasing food production. Citing high opportunity costs and poor targeting, the government has continued to signal its intent to reform subsidies. They plan to prohibit private cars from consuming subsidized fuels in Java and Bali beginning April 1, 2012. By 2015, the policy is expected to be implemented nationwide.
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