SURVEY OF RECENT DEVELOPMENTS

Abstract

Summary Macroeconomic performance continued its steady improvement during 2007, with quite strong growth, moderate inflation, a reasonably stable exchange rate, and a strongly performing stock market. A promising sign has been rapid investment growth, although the global economic slow‐down predicted for 2008 is likely to reduce Indonesia's exports, and therefore its growth rate. Moreover, rapid increases in food and energy prices on world markets seem likely to require some tightening of monetary policy to keep inflation in check. The 2008 budget finalised in November assumed a world oil price of $60 per barrel, even though the actual price was already closer to $90. By February it reached $100, and the government announced its intention to revise the budget further in light of this and of the likely impact of the coming global slow‐down. While the impact of higher oil prices on the budget deficit can readily be accommodated, the subsidy cost of holding domestic energy prices constant will be enormous. Under‐spending on infrastructure continues to be a problem‐partly because so much revenue is being pre‐empted for subsidies, but also because funding allocations are not being fully spent, and because coordination between different government jurisdictions is lacking. January 2008 saw the passing of former president Soeharto, whose 32 years in power dramatically reshaped the Indonesian economy. Despite the well‐known human rights abuses and high level of corruption under his regime, the government observed a seven‐day period of mourning, and there was a genuine display of grief on the part of many ordinary Indonesians. There have been worrying developments in relation to two institutions established as part of Indonesia's post‐Soeharto democratisation, and in relation to the parliament (DPR) itself. The Business Competition Supervisory Commission's decisions on the mobile phone industry appear likely to do further damage to foreign investors' perceptions of Indonesia, and to be harmful to consumers' interests. The DPR's appointment of five new members of the Anti‐Corruption Commission (KPK) followed a closed‐door selection process, the outcome of which suggested that the commission faces capture and subversion by other public sector institutions seeking to block anti‐corruption efforts. Finally, a case brought by the KPK against officials of the central bank, including the current governor, has provided strong evidence of the apparently widespread practice of government agencies bribing DPR members.