Economic

Economic

Indonesia has a market-based economy where the government plays an important role. The government has more than 164 state-owned company set the price and some basic goods, including fuel, rice, and electricity. After the Asian financial crisis that began in mid-1997, the government maintain the share of assets, many of the private sector takeovers through bank loans and assets do not run the company through the process penstrukturan debt.


For more than 30 years of President Soeharto's New Order, economic growth per capita GDP of $ 70 to more than $ 1,000 in 1996. Through monetary and financial policies of strict inflation on hold for about 5% -10%, stable rupiah and can diterka, implement the system and the government budget balanced. Many of the development budget is financed through foreign aid.

In the mid-1980s the government began to remove barriers to economic activities. This step is aimed primarily at the external and financial sector and is designed to increase employment and growth in the field of non-oil exports. Real GDP grows annual average of close to 7% from 1987-1997, and a lot of analysis recognizes India as a market economy and major industries are growing.

Level of economic growth from 1987-1997 covering high some structural weaknesses in the Indonesian economy. Legal system is very weak, and there is no effective way to run the contracts, collecting debts, or the top of the bankruptcy. Bank activity is very simple, with a borrowing-based "collateral" and the extension of rules violations, including the borrowing limit. Non-tariff barriers, by renting state-owned companies, domestic subsidies, barriers to domestic trade, and create obstacles to export the whole economic disruption.

Southeast Asia financial crisis is over Indonesia at the end of 1997 and quickly turned into a political and economic crisis. Indonesia's first response to this problem is the increasing level of domestic interest rates to control inflation and increase in the rupiah weakening, and strengthen policy fiskalnya. In October 1997, Indonesia and the International Monetary Fund (IMF) reached agreement on economic reform program which focused on macro-economic penstabilan and deletion of some economic policies that are harmful, such as the National Program Permobilan and monopoly, which involved members of President Soeharto's family. Rupiah still not stable within a fairly long time, until eventually forced President Suharto resigned in May 1998. In August 1998, Indonesia and the IMF agreed to fund the loan program under President BJ Habibie. President Gus Dur who was chosen as president in October 1999 and then extend the program.



Asia financial crisis since the end of the 1990s, which has at least over the fall of Suharto regime in May 1998, public finance has experienced great transformation. Financial crisis is causing economic contraction and a very large decline in a parallel public expenditure. Not surprisingly debt and subsidies increased dramatically, while development expenditure reduced sharply.

Today, a decade later, has come out of the crisis and are in a situation where once again the state has financial resources sufficient to meet the needs of development. These changes occur because of macroeconomic policies be careful, and the most important budget deficit which is very low. Also how to spend government funds have experienced the transformation through "major changes" decentralization of 2001, which caused more than a third of the overall government budget to switch to the local government in 2006. This is another equally important, in the year 2005, international oil prices continue to increase the domestic oil subsidies Indonesia can not be controlled, threatening macroeconomic stability that has been struggling to achieve. Although there are political risks that increases in oil prices will encourage a high level of inflation was increasing, the government took the brave decision to cut oil subsidies.

The decision to give U.S. $ 10 billion for additional spending for development programs. Meanwhile, in the year 2006 an additional U.S. $ 5 billion is already available thanks to a combination of the increased income that is driven by stable economic growth and a decrease in overall debt payment, the rest of the economic crisis. This means that in 2006 the government has U.S. $ 15 billion extra to spend on development programs. The country has not experienced 'fiscal space' that big since experienced an increase in income when the oil hikes in mid-1970s. However, the main difference is the large increase in income from oil 1970s purely financial success is only the unexpected. Conversely, when fiscal space is achieved as a direct result of government policy decisions are the heart and right heart.

However, while Indonesia has obtained remarkable progress in providing financial resources to meet the needs of development, this situation and are prepared to continue in a few years, the subsidy remains a major burden on the government budget. Although there is a reduction in subsidies in 2005, the total subsidy is about U.S. $ 10 billion of government expenditure in 2006 or 15 percent of the total budget.

Thanks to the government decision Habibie (May 1998 - August 2001) to decentralize authority to the local government in 2001, the bulk of the increased government spending channeled through local governments. The result provincial and district governments in Indonesia now spends 37 percent of the total public funds, which reflects the level of fiscal decentralization is even higher than the OECD average.

With the level of decentralization in Indonesia at this time and the fiscal space that is now available, the government of Indonesia has a unique opportunity to improve public services that terabaikan. If managed carefully, it allows the areas left behind in the eastern part of Indonesia to pursue other areas in Indonesia are more advanced in terms of social indicators. This also allows the people of Indonesia to focus in the next generation to make changes, such as improving the quality of public services and the provision of infrastructure such as targeted. Therefore, the allocation of public funds and proper management of the care of the funds are allocated at the time they have become a major issue for public spending in Indonesia kedepannya.

For example, while the education budget has reached 17.2 percent of total public spending, to get the highest allocation than other sectors, and take approximately 3.9 percent of GDP in 2006, compared with only 2.0 percent of GDP in 2001 - the total public health expenditure is still under 1.0 percent of GDP. Meanwhile, public infrastructure investment is still not fully recover from the lowest post-crisis level and is still on the 3.4 percent of GDP. One other area which is the focus at this time is the level of expenditure for the administration of the extraordinary high. Achieve as much as 15 percent in 2006, shows a scattering of significant resources on the public.

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