Message from the Deputy Governor of Bank Indonesia

Summary

I am indeed delighted to provide a Message to this distinguished book, The Indonesian Economy: Entering a New Era.

This book, in my view, is issued at an appropriate moment against the backdrop of the global financial crisis of unprecedented scale since the Great Depression. I notice a number of significant changes in the global economy and financial environment that have significant bearing on emerging economies, including Indonesia, such as the unsynchronized global economic recovery in tandem with the closer link between macroeconomic and financial stability. Despite the recent turmoil, Indonesia, as part of the Asian region, has proved to be more resilient than earlier anticipated though not entirely unscathed from the global crisis. However, global challenges have not entirely abated. In fact, new risks have emerged as the Fed launched the quantitative easing two (QE2) which has heightened the volatility of capital flows.

My commendation on this book mainly rests on the wide range in topic, rigour in analyses, and novelty in policy recommendation, thanks to the collaborative work of authors from Bank Indonesia as well as other academicians and scholars who add exceptional value to this book. In terms of coverage of topic, while it focuses on macroeconomic and financial issues, mainly reflecting a central bank's purview, it does not lose sight of other areas shaping Indonesia's economic development. It also looks backward at the era beginning with the New Order government, as a reflection of the past successes and existing constraints, while also looking forward towards the future challenges. Other areas exhaustively addressed in this book include population dynamics, industrial relation, domestic regional trade, governance in both micro and macro levels, and the readiness of Indonesia in entering the new era of the ASEAN Economic Community 2015.

The rigour of the analyses is reflected in the various models the researchers employ to unravel empirical findings such as the computable general equilibrium (CGE) model in assessing the effectiveness of fiscal stimulus. Structural equation modeling (SEM) has also been applied to measure the impact of the quality of governance on economic growth and per capita GDP.

Given the changing global economic and financial environment as well as the structural changes in Indonesia's economy, this book attempts to seek a new development paradigm as the basis of policy recommendations to reinvigorate Indonesia's economy by laying the foundation for a more sustainable development.