Economics

Indonesia’s macroeconomic economy was performing reasonably well prior to the onset of the current crisis in the last quarter of 2008. GDP growth averaged more than 5% a year from 2001-2008 and was on an increasing trend - in the year up to the third quarter of 2008 GDP growth was 6.4%. Unemployment was falling, as were poverty numbers, albeit slowly. Inflation, which peaked at 11% in mid-2008 due to the global food price crisis and reductions in government fuel subsidies, was falling steadily.

The macroeconomic shock experienced by Indonesia did not start with the global financial crisis. Commodity prices collapsed in the latter half of 2008, stabilizing in early 2009 at around 40 percent of their mid-2008 peaks. The price falls particularly affected the sectors which had contributed most to export growth in the preceding years. As a result, export values dropped sharply – by January 2009 export values were 36.1% below the level of a year earlier – with the fall in oil prices by more than two-thirds driving much of this drop. But export volumes also fell with reduced demand from key markets and by the first quarter of 2009 were almost a fifth lower than a year previously.

Indeed, Indonesia was one of the least affected countries in South East Asia. Although GDP growth slowed markedly to 4.4% in the first quarter of 2009, it did not experience the collapse in growth experienced by countries such a Korea, Thailand and Malaysia. In part this was because the major impact has been through exports, and the share of Indonesia’s output that is exported is the smallest of all the major South East Asian economies . Although the crisis reduced growth across the board, sectors such as transport and communications, and utilities have continued to grow in double digits. At the same time, the tradeable sector which has performed best is agriculture, which, at 4.8%, has experienced its strongest growth since the East Asian crisis, helping to compensate for the effects of the...