Trade Protectionism in Indonesia: Bad Times and Bad Policy

Abstract

Difficult economic circumstances have historically led Indonesian leaders to enact economic reforms, leading some to argue that bad times have resulted in good policy. But as Indonesian growth has slowed over the past year, the government has departed from this pattern, and is instead ratcheting up protectionist measures in the form of a variety of non-tariff barriers. These measures are likely to drive up prices for Indonesian consumers at a time when their purchasing power is declining, and undermine the competitiveness and productivity of Indonesian firms. A strong rupiah, anti-foreign sentiment, increased Chinese competition in the global supply chain, and the populist preferences of new Indonesian President Jokowi have all combined to push Indonesia toward protectionism. Despite the negative consequences for Indonesian consumers and firms, these measures are likely to continue under the Jokowi Administration.