Indonesia : Maintaining Stability, Deepening Reforms

Indonesia experienced another year of modest growth amidst a hesitant global recovery, and a deteriorating investment climate. Significant progress was made in democratization, macroeconomic stability and fiscal sustainability, but growth did not pick up and progress in poverty reduction stalled. Growth remained largely consumption driven, as investors increasingly felt the pinch of a cooling investment climate and a weak legal system. The Bali bombing threatened to sink hopes for higher growth, but that risk has been mitigated thanks to the remarkable resolve the Government has shown in the aftermath of the tragedy. The swift action on security, a fiscal stimulus, and acceleration of structural reforms are likely to limit the damage of the attack. That same resolve should now be used to pursue the reforms that can accelerate growth, create jobs, and further reduce poverty. The Government must move now, before the elections distract politicians, or tempt them into taking popular, but harmful measures such as those recently taken in trade. The Government should stay the course on macroeconomic policies, maintain fiscal sustainability, revamp the investment climate and rebuild the broken institutions in the legal system.