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281 15 The Indonesian economy during the Yudhoyono decade Hal Hill* After a decade in power, President Susilo Bambang Yudhoyono left Indonesia a more prosperous country than any of his five predecessors . He pledged to be a president who would be ‘pro-growth, pro-jobs, pro-poor and pro-green’. That is, he staked his leadership credentials on rapid socio-economic development. At one level, one could argue that he achieved this goal, as the Indonesian economy enjoyed moderately strong growth during his tenure. If one digs deeper, however, it becomes clear that there are contrasting narratives on his economic record. According to one viewpoint, he inherited a fragile economy and political system, and he consolidated both, to the point where Indonesia is now the world’s tenth-largest economy (as measured by purchasing power parity) and a robust democracy. An alternative narrative recognises these achievements but also laments Yudhoyono’s timidity on key economic reform issues, notably fuel subsidies, the infrastructure deficit , economic nationalism and inequality. These narratives need to be assessed in the light of a range of contextual factors that take into consideration the weight of public expectations in Indonesia, the regional and global economic environments and comparative assessments of the economies of neighbouring states or of the BRIC states (Brazil, Russia, India and China). * I am grateful to the editors for detailed comments on earlier drafts, and to Update participants for useful exchanges. I wish to thank Dr Haryo Aswicah­ yono, on whose joint work I have drawn. I have also drawn extensively on the detailed analytical commentaries in the ‘Survey of recent developments’ published regularly in the Bulletin of Indonesian Economic Studies. Update book 2014-15.indb 281 19/04/2015 11:39 am 282  The Yudhoyono Presidency: Indonesia’s Decade of Stability and Stagnation In this chapter I examine the performance of the Indonesian economy during Yudhoyono’s decade in power (2004–14), asking four main questions . First, how did the economy perform according to conventional economic yardsticks? Second, how does this record compare with earlier periods of Indonesian economic development, and with those of comparable countries? Third, how have contextual factors affected Indonesia’s economic track record? Fourth, to what extent can one draw a direct causal connection between the economic outcomes and the Yudhoyono presidency, in the sense that the outcomes were a result of initiatives and decisions of the president himself? Drawing tight causal connections between an administration and a country’s economic outcomes is a hazardous exercise given that many factors are not directly amenable to presidential control. This is obviously so in the case of global economic conditions, but domestically too there are many ‘veto players’ who can frustrate economic policy-making and reform. With this caveat, two broad themes inform this analysis. First, President Yudhoyono presided over a decade of moderately strong economic growth. Coming in the wake of the deepest economic crisis in Indonesian history, and in the context of unprecedented global economic volatility, this must be counted as a major achievement. I explore the factors underpinning this growth and the contribution of the Yudhoyono administration in achieving this outcome. Second, although Yudhoyono presided over the system, he did not, or perhaps could not, attempt any significant economic reform. His economic management was reactive more than proactive. With the key macroeconomic policy settings established , he appointed competent ministers to oversee them—to emphasise , a significant achievement—but as I will argue below, it is difficult to discern any major policy reforms elsewhere. The result has been an economy that is most likely ‘crisis-proof’, but one that will be unable to achieve the economic dynamism required to lift Indonesia into the ranks of upper middle-income economies as quickly as the Indonesian public expects or some of the official rhetoric projects. The chapter is organised as follows. The first section establishes some key markers—criteria by which to evaluate the economic record—and considers some contextual factors that affected Indonesia’s economic performance over Yudhoyono’s decade in office. The second provides an overview of the economy during the Yudhoyono years. The third investigates macroeconomic management, a policy area characterised by both notable successes and a failure to tackle the subsidies issue. The fourth section examines the commercial policy environment, and the fifth provides a case study of one key area of underperformance, infrastructure. The concluding section sums up the main arguments. Yudhoyono inherited a somewhat fragile economy, but one in which the economic policy Update book...


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