Connect with us
// (adsbygoogle = window.adsbygoogle || []).push({});


Indonesia: Blessed by strong economic growth and the curse of resources

Author: Thee Kian Wie, LIPI, Jakarta The Indonesian economy continued to grow strongly at 5.8 per cent (yoy) during the third quarter of 2010, which was slightly lower than during the second quarter of  the year when growth reached 6.2 per cent.



Author: Thee Kian Wie, LIPI, Jakarta

The Indonesian economy continued to grow strongly at 5.8 per cent (yoy) during the third quarter of 2010, which was slightly lower than during the second quarter of  the year when growth reached 6.2 per cent.

The slightly lower growth during the third quarter of 2010 was due to the unusual weather conditions caused by continuous rains. This had an adverse effect on some sectors, including agriculture, construction and trade.

Growth for the whole of 2010 is forecast to range between 6.0 per cent  to 6.3 per cent,  compared with 4.5 per cent in 2009 and 6.1 per cent in 2008. These figures indicate that the Indonesian economy has successfully weathered the Global Financial Crisis (GFC). The higher growth in 2010 is supported by strong growth in consumption, investment, and exports, which is estimated to be sustained in 2011. For 2011 the Indonesian economy is forecast to grow at 6.0 per cent to 6.5 per cent, and at 6.1 per cent to 6.6 per cent in 2012.

Although there has been increased inflationary pressure in recent months, Bank Indonesia has managed to control inflation at a manageable level, with the latest CPI inflation in November 2010 reaching 0.6 per cent (mtm) or 6.3 per cent (yoy), slightly higher than in October 2010.  Inflation during 2010 is likely to be higher than the target corridor of  5+ or – per cent .  The higher inflation during 2010 is mostly due to the volatile food prices and the administered prices, but core inflation may be lower than the historical level.  In 2011 inflation is estimated to be 5 + or – 1 per cent.

On the fiscal side, Indonesia has continued to pursue a prudent fiscal policy in 2010, with a strong commitment to fiscal consolidation, aimed at continuing declining public debt to GDP ratio, diversification of the government debt portfolio, and reduced reliance on funding from the international capital market.

Investment has been growing strongly throughout 2010 due to the improved investment climate and the nascent global recovery. Exports have remained high, although it grew at a slower rate (13.4 per cent)  than imports (15.2 per cent). The balance of payment’s current account in the third quarter of 2010 recorded a surplus of about US$1.3 billion due to the good performance in the non-oil and gas trade balance, the gas trade balance, and current transfers. This current account surplus was less than the surplus of US$1.8 billion in the second quarter due to higher deficits in the services and income accounts.

The capital and financial account during the third quarter of 2010 recorded a surplus of US$6.5 billion, an increase from the US$4.4 billion surplus in the second quarter of 2010.  These surpluses are due to inflows of foreign direct investment (FDI) and particularly to vast inflows of portfolio investment. The surge in portfolio investment is due to excess liquidity in the global financial markets, the uncertain economic prospects in the US and the European Union, and the more attractive returns on investment in Indonesia. The increased FDI inflows are due to an improvement in Indonesia’s investment climate and the stable macroeconomic conditions.

In 2011 Bank Indonesia has to remain vigilant to the following challenges: increased inflationary pressure; the adverse impact of massive portfolio capital inflows; and excess domestic liquidity.  To deal with these risks, Bank Indonesia will implement a mix of monetary and macro prudential policies.

Looking further ahead, one of the major challenges facing the Indonesian economy in the near future is the continued weak performance of the manufacturing sector which after the Asian financial crisis has been growing at low single digit rates. In contrast, during the three decades of the Soeharto era, Indonesia’s manufacturing sector recorded a double digit growth. In fact, after the Asian financial crisis the tradeables sector (agriculture, mining and manufacturing) recorded a much slower growth than the non-tradeables sector. This development is worrying, as employment opportunities are generated to a much greater extent in the tradeables sector, particularly the manufacturing sector. Greater employment opportunities in manufacturing are also a good way to reduce absolute poverty, as the recent experience of China has indicated.

Indonesia is a resource-rich country, and in recent years it has mostly relied on the exports of primary commodities, just like it had during the Dutch colonial period. This reliance was stimulated by rising commodity prices, driven by the voracious demand of Asia’s two rapidly growing economies of China and India, particularly for crude palm oil, coal, copper and rubber. Indonesia thus appears to suffer from the ‘resource curse,’ unable to diversify its economy away from its reliance on primary exports.  Nor, unfortunately, has the Indonesian government thus far made clear how it will or can escape from this curse.

Thee Kian Wie is a senior economist at the Indonesian Institute of Sciences (LIPI) in Jakarta.

This is part of the special feature: 2010 in review and the year ahead.

  1. Indonesia’s economy continues to surprise
  2. Indonesia and the BRICs
  3. Indonesia’s strong balance sheets—key to weathering the global financial crisis

See the article here:
Indonesia: Blessed by strong economic growth and the curse of resources


ASEAN weathering the COVID-19 typhoon



Vietnam's Prime Minister Nguyen Xuan Phuc addresses a special video conference with leaders of the Association of Southeast Asian Nations (ASEAN), on the coronavirus disease (COVID-19), in Hanoi 14 April, 2020 (Photo:Reuters/Manan Vatsyayana).

Author: Sandra Seno-Alday, Sydney University

The roughly 20 typhoons that hit Southeast Asia each year pale in comparison to the impact on the region of COVID-19 — a storm of a very different sort striking not just Southeast Asia but the world.


Just how badly is the COVID-19 typhoon thrashing the region? And what might the post-crisis recovery and reconstruction look like? To answer these questions, it is necessary to investigate the strengths and vulnerabilities of Southeast Asia’s pre-COVID-19 economic infrastructure.

Understanding the structure of the region’s economic house requires going back to 1967, when Southeast Asian countries decided to pledge friendship to one another under the ASEAN framework. While other integrated regions such as NAFTA and the European Union have aggressively broken down trade barriers and significantly boosted intra-regional trade, ASEAN regional economic integration has chugged along slower.

Southeast Asian countries have not viewed trade between each other as a top priority. The trade agreements in the region have been forged around suggestions for ASEAN countries to lower tariffs on intra-regional trade to within a certain range and across limited industries. This has lowered but not eliminated barriers to intra-regional trade. Consequently, a relatively significant share of Southeast Asian trade is with countries outside the region. This active extra-regional engagement has resulted in ASEAN countries’ successful integration into global value chain networks.

A historically outward-facing region, in 2010 around 75 per cent of Southeast Asian commodity imports and exports came from countries outside of ASEAN. This share of extra-regional trade nudged closer to 80 per cent in 2018. This indicates that ASEAN’s global value chain network embeddedness has deepened over time.

Around 40 per cent of ASEAN’s extra-regional trade is with the rest of Asia. From 2010 to 2018 Southeast Asian countries forged major trade relationships with four Asian countries: China, Japan, South Korea and India. Outside Asia, the United States is the region’s major trading partner. ASEAN’s trade focus on Asia’s largest markets is not surprising. Countries tend to establish trade relationships with large, geographically close, and culturally similar markets.

Fostering deep relationships with a few large markets, however, is a double-edged sword. While it has allowed ASEAN to benefit from integration in global value chains, it has also resulted in increased vulnerability to the shocks affecting its network connections.

ASEAN’s participation in global value chains has allowed it to transition from a net regional importer in 1990 to a net regional exporter in 2018. But the region’s deep embeddedness in a small and tightly-coupled network cluster of extra-regional global value chain partners has exposed it to disruption to any and all of its external partners. By contrast, ASEAN’s intra-regional trade network structure is much more loosely-coupled: a consequence of persistent intra-regional trade barriers and thus lower intra-regional trade intensity.

In the pre-COVID-19 period, ASEAN built for itself an economic house held up by just five extra-regional markets, while doing less to expand and diversify its intra-regional trade network. The data shows that ASEAN trade became increasingly concentrated in these few external markets between 2010 and 2018.

This dependence on a handful of markets does not bode well for risk and crisis management. All of the region’s major trading partners have been significantly affected by COVID-19 and this in turn is blowing the ASEAN economic house down.

What are the ways forward? The immediate task at hand is to get a better picture of the region’s position in global value chain networks and to get on top of managing its network risk exposure. Already there are red flags around the region’s food security arising from its position in food value chains. It is critical to look for ways to introduce flexibility into existing supply chains for greater agility in responding to crises.

It is also an opportune time for ASEAN to harness the technology transfer gains of global value chain participation and invest in innovation-driven diversification of products and markets. The region’s embeddedness in global value chain networks certainly places it in a strong position to readily access large export markets not just in Asia but also Europe and the Americas.

Over the longer term, ASEAN is faced with the question of whether it should seriously look…

Source link

Continue Reading


Tiger Trade Launches SGX Trading, Meeting Demand from Asian Investors

Access to the Singapore Exchange (SGX) adds to Tiger Brokers’ current menu of stock exchanges, such as the New York Stock Exchange (NYSE) and the Nasdaq Stock Market (NASDAQ), the world’s two largest stock exchanges, as well as the Hong Kong Stock Exchange (HKEX).



SINGAPORE (ACN Newswire) – Tiger Trade, a one-stop mobile and online trading application by Tiger Brokers, has launched access to the Singapore Exchange (SGX).

Continue Reading


Can Asia maintain growth with an ever ageing population ?

To boost productivity in the future, Asian governments will have to implement well-targeted structural reforms today.



Asia has been the world champion of economic growth for decades, and this year will be no exception. According to the latest International Monetary Fund Regional Economic Outlook(REO), the Asia-Pacific region’s GDP is projected to increase by 5.5% in 2017 and 5.4% in 2018. (more…)

Continue Reading