IMPACT OF AGRICULTURE TRADE AND SUBSIDY POLICY ON THE MACROECONOMY, DISTRIBUTION, AND ENVIRONMENT IN INDONESIA: A STRATEGY FOR FUTURE INDUSTRIAL DEVELOPMENT

Abstract

HE crisis in Asia has entered its third year. While neighboring East Asian economies such as the Republic of Korea and Thailand are showing signs of significant economic recovery, the prospects for the Indonesian economy in the short term remain the subject of conjecture and controversy, despite the major economic reform undertaken by the government with the help of multilateral agencies such as the International Monetary Fund (IMF), World Bank, and Asian Development Bank (ADB). Progress in various aspects of reform such as on banking, corporate restructuring, and legal reform has been very slow. Uncertainty over Indonesian economic prospects appears to influence not only the business community engaged in assessing specific business risks and opportunities, but large multilateral lenders as well. Recently, the IMF went as far as to state that the estimate for this year’s (2000) economic growth of over 3 per cent should be interpreted with caution, since this anticipated growth in GDP is based on a consumption-driven recovery. There are, as yet, few signs of a turnaround in investment. Fortunately, the Indonesian economy survives due to the agricultural output and the performance of agricultural exports. The agricultural sector continues to play an important role in production and exports in Indonesia. Before the crisis, the value of exports of agriculture-related products doubled from around U.S.$6,500 million in 1988 to more than U.S.$15,000 million in 1997. This sector also plays a role in generating employment, supplying basic foods and inputs for industrial goods, and providing a substantial source of