Economy

Indonesia, a vast polyglot nation, has weathered the global financial crisis relatively smoothly because of its heavy reliance on domestic consumption as the driver of economic growth. Although the economy slowed significantly in 2009 from the 6%-plus growth rate recorded in 2007 and 2008, by 2010 growth returned to a 6% rate. During the recession, Indonesia outperformed its regional neighbors and joined China and India as the only G20 members posting growth.

The government made economic advances under the first administration of President YUDHOYONO, introducing significant reforms in the financial sector, including tax and customs reforms, the use of Treasury bills, and capital market development and supervision. Indonesia's debt-to-GDP ratio in recent years has declined steadily because of increasingly robust GDP growth and sound fiscal stewardship. Indonesia still struggles with poverty and unemployment, inadequate infrastructure, corruption, a complex regulatory environment, and unequal resource distribution among regions.

 

YUDHOYONO's reelection, with respected economist BOEDIONO as his vice president, suggests broad continuity of economic policy, although the start of their term has been marred by corruption scandals and the departure of an internationally respected finance minister. The government in 2010 faces the ongoing challenge of improving Indonesia's insufficient infrastructure to remove impediments to economic growth, while addressing climate change mitigation and adaptation needs, particularly with regard to conserving Indonesia's forests and peatlands, the focus of a potentially trailblazing $1 billion REDD+ pilot project.