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Indonesia

Indonesia’s investment in flux

Alex Sienaert's picture

Can Indonesia’s economy move from a situation of investment in flux to an investment influx? This is one of the questions posed by the World Bank’s March 2014 edition of the Indonesia Economic Quarterly.

Why is Indonesia’s investment growth in flux? First, there has been a slowdown in fixed investment, due to lower terms of trade and tighter external financing conditions. This has helped narrow Indonesia’s external imbalances.

Second, while foreign direct investment—an important source of investment financing—has remained solid so far, the rapid growth of FDI inflows seen in recent years shows signs of plateauing.

Third, Indonesia remains reliant on external financing from portfolio investment inflows. These have surged in recent months, but they can be volatile.

Finally, recent policy developments have increased regulatory uncertainties. Add to that the usual difficulty of predicting policy ahead of elections, which may impact on investment of all kinds.

Given uncertain prospects for global investment flows to major emerging market economies like Indonesia, the good news is that Indonesia’s external balances are adjusting. The current account deficit shrank significantly in the fourth quarter of 2013, to $4.0 billion, or 2% of GDP. This is a welcome reduction from the record high of $10.0 billion in the second quarter of 2013—that’s 4.4% of GDP. The stock market rallied, gaining 9% in local currency terms, bond yields fell, and the Rupiah climbed back by 7% against the USD, year-to-date, recouping some of last year’s significant losses. Banking and portfolio inflows also rose in the final quarter of 2013*.

But some caution is warranted. The adjustment has been narrowly based on tighter monetary policy and currency depreciation over the second half of 2013, and slower investment growth. Indonesia remains vulnerable to a renewed deterioration of global market conditions.

Pushing the Envelope

Laura Ralston's picture

Giving Cash Unconditionally in Fragile States

2012 Spring Mtgs - Close the Gap There have been many recent press articles, a couple of potentially seminal journal papers, and some great blogs from leading economists at the World Bank on the topic of Unconditional Cash Transfers (UCTs). It remains a widely debated subject, and one with perhaps a couple of myths associated with it. For example, what is cash from UCTs used for? Do the transfers lead to permanent increases in income? Does it matter how the transfers are labelled or promoted? I am particularly interested in whether UCTs could be a useful instrument in countries with low institutional capacity, such as fragile and conflict-affected states (FCS).

Why UCTs in FCS? UCTs present a new approach to reducing poverty, stimulating growth and improving social welfare, that may be the most efficient and feasible mechanism in FCS. A recent evaluation of the World Bank’s work on FCS recognized, “where government responsiveness to citizens has been relatively weak, finding the right modality for reaching people with services is vital to avoiding further fragility and conflict”. Plus there is always the risk of desperately needed finances being “spirited away” when channeled through central governments. UCTs may present a mechanism for stimulating the provision of quality services, which are often lacking, while directly reducing poverty at the same time. As Shanta Devarajan’s blog puts it, “But when they (the poor) are given cash with which to “buy” these services, poor people can demand quality—and the provider must meet it or he won’t get paid.” We should explore more about this approach to tackling poverty: where and when it has worked, what made it work, and whether we can predict whether it will work in different contexts.
 

Spicing up research on sub-national development through open data: Indonesia Data for Policy and Economic Research (INDO-DAPOER)

Also available in Bahasa

It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts. – Sherlock Holmes.
It's a game changer for those working on Indonesia's sub-national development issues. Comprehensive data at the sub-national level is now available to the public through INDO-DAPOER (Indonesia Data for Policy and Economics Research) at data.worldbank.org. DAPOER, which means ‘kitchen’ in Indonesian, is intended to be a ‘place’ where various data are blended, like spices, and cooked to produce analytical works, research papers, and policy notes.

INDO-DAPOER is the first World Bank sub-national database consisting of both province and district level data to be publicly accessible from anywhere in the world. The database provides access to around 200 indicators from almost 500 districts and 34 provinces in Indonesia, which in general go back to the early 1990s and even 1980s for some. The indicators are grouped into four main categories: fiscal, economic, social demographic, and infrastructure. Indicators range from sub-national government revenue and expenditure, sub-national GDP, to specific education, health, and infrastructure indicators such as net enrollment rate for junior secondary, immunization rate, and household access to safe sanitation.

Weekly Wire: the Global Forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

How Information Flows During Emergencies
MIT Technology Review
Mobile phones have changed the way scientists study humanity. The electronic records of these calls provide an unprecedented insight into the nature of human behaviour revealing patterns of travel, human reproductive strategies and even the distribution of wealth in sub-Saharan Africa. All of this involves humans acting in ordinary situations that they have experienced many times before. But what of the way humans behave in extraordinary conditions, such as during earthquakes, armed conflicts or terrorist incidents? READ MORE.

‘Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil
The New York Times
The long-running boom in emerging markets came to be identified, if not propped up, by wide acceptance of the term BRICs, shorthand for the fast-growing countries Brazil, Russia, India and China. Recent turmoil in these and similar markets has produced a rival expression: the Fragile Five. The new name, as coined by a little-known research analyst at Morgan Stanley last summer, identifies Turkey, Brazil, India, South Africa and Indonesia as economies that have become too dependent on skittish foreign investment to finance their growth ambitions. The term has caught on in large degree because it highlights the strains that occur when countries place too much emphasis on stoking fast rates of economic growth. READ MORE.

Exit, Voice, and Service Delivery for the Poor

Robert Wrobel's picture

Inspired by Jeremy Adelman’s wonderful biography of Albert Hirschman (Worldly Philosopher: The Odyssey of Albert O. Hirschman, Princeton University Press, 2013), I’ve read and reread Hirschman’s masterpiece, Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations, and States, (Harvard University Press, 1970) and his follow up essay “Exit, Voice, and State” (reprinted in The Essential Hirschman, Princeton University Press, 2013). Although Hirschman produced these works over 40 years ago, his simple model of flight (“exit”) or resistance (“voice”) in the face of unsatisfactory economic, political or social conditions remains highly relevant for policymakers and development practitioners concerned with eliminating extreme poverty, reducing inequality, and improving basic services accessible to the poor.
 
Hirschman’s ideas provide much cause for reflection within the context of present-day Indonesia. Indonesia has enjoyed over a decade of macroeconomic stability and economic growth. From 2000 to 2011 GDP expanded by 5.3 percent per year, and the official poverty count halved from 24 percent in 1999 to 12 percent in 2012.  This period also saw notable improvements in health and education. Access to education has become more widespread and equitable. Girls are now as likely as boys to graduate from secondary school. In health, Indonesia is on track to meet Millennium Development Goals for reducing both the prevalence of underweight children under five years old, and the under-five mortality rate.
 

Calibrating 2014

Otaviano Canuto's picture

The global economy looks poised to display better growth performance in 2014. Leading indicators are pointing upward – or at least to stability – in major growth poles. However, for this to translate into reality policymakers will need to be nimble enough to calibrate responses to idiosyncratic challenges.

Cleaning Up One of the World’s Most Polluted Places

Guy Hutton's picture

For users of water-based sanitation, most of us give little thought to what happens after we hear the sound of the toilet flushing. Wooooosh -- out of sight, out of mind.

Certainly, there is massive benefit to be derived from owning and using a functioning toilet.

But what if you were told that there is nothing at the end of the sewage pipe that actually deals with what flows down the toilet? What if you learned that every flush pollutes the environment, and that combined with the chemicals, heavy metals and nutrients from industrial pollution and agricultural run-off, the improperly treated waste was turning rivers, lakes and estuaries into dead zones? Would you think twice next time you flushed?

Waste Not, Want Not : “Waste Banks” in Indonesia

Randy Salim's picture



When you’ve grown so used to tossing all manner of garbage into the trash bin, without giving a second thought to whether it is organic or non-organic waste, it’s easy to not care where your garbage ultimately ends up. But the reality is that, in Indonesia, your garbage gets mixed together with the garbage of millions of households, creating mountains of toxic waste too large to contain in municipal landfills.
 
As experts in the field would vehemently argue, solid waste management is not the sole responsibility of a municipal government, but a collective one. As populations grow and consumption patterns increase, more and more solid waste is created– and landfills can only take so much waste!
 
So what to do? The World Bank in Indonesia is currently exploring how to improve solid waste management, and scaling up ‘waste banks’ is one option.  Recently I went on mission with the Solid Waste team to see these waste banks at work.
 

Why I’m More Optimistic than Ever about Biodiversity Conservation

Valerie Hickey's picture
Conservation biology was baptized as an interdisciplinary problem science in 1978 at a University of California San Diego conference. But the conservation movement precedes this conference by at least a century, when the first national park was established in Yellowstone in 1872 and signed into law by U.S. President Ulysses S. Grant. Both the academic discipline and the practice of conservation have had two things in common for a long time: they remained steadfast to their original mission to protect nature and their proponents were largely American and European and mostly middle class. 
 
But nothing stays the same forever.
 

Indonesia’s “continuing adjustment”

Alex Sienaert's picture

2013 has been a year of adjustment for Indonesia’s economy.  In the recent edition of the Indonesia Economic Quarterly report, the flagship publication of the World Bank Indonesia office, we asked the questions: what are the drivers of this adjustment and how should policy respond?


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