Diagnosing the Indonesian Economy: Toward Inclusive and Green Growth

Abstract

Diagnosing the Indonesian Economy: Toward Inclusive and Green Growth', edited by H. Hill, M. E. Khan, and J. Zhuang, commences with a broad overview of Indonesia's development since the 1960s. The analytical frameworks for the study, which were developed at Harvard University and ADB, are then used in an attempt to identify the constraints that most severely bind the country's development, and therefore the priorities for policy implementation and/or reform. The country's macroeconomic management and monetary policy since the Asian financial crisis is reviewed. The challenges of Indonesia's slow industrial transformation and small industry sector are described, as are their implications for poverty reduction efforts. The challenges Indonesia faces in developing its infrastructure are set out, e.g., the country's diverse topography, archipelagic nature, and monopolies. Human capital, an essential element in both growth and poverty reduction, is analyzed for the country, including the improvements in enrolments and gender balance, and the limitations the poor face to accessing education. Indonesia's record on poverty reduction is traced, as are the efforts to improve it. The links between employment creation and poverty reduction are presented, with a focus on the pressing issue of youth employment. The impact and status of the decentralization effort and efforts to fine-tune it are discussed. Lastly, the rather dismal status of the country's environment and natural resources management and the emerging impacts of climate change are summed up.

Indonesia's national development plan for 2005-2025 sets a vision of a country that is self-reliant, has a highly educated population with capable human resources, has no discrimination, and is prosperous enough to fulfil its population's needs. This will require high levels of economic growth that is both socially inclusive and environmentally sustainable. The volume identifies that in order to overcome the binding constraints to this growth, Indonesia needs to improve its infrastructure, enhance the education system to provide a more capable workforce, revive its manufacturing sector to open up employment, and facilitate these efforts through substantially improved governance and institutions. Furthermore, this growth must be accomplished in a manner that is harmonious and not destructive to the environment and natural resource base.