Indonesia Globalisation

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Indonesia is the largest economy of the South East Asian region. Previously considered a developing economy, Indonesia is now categorised an emerging economy due to its strong growth performance, prospects and shift from an agricultural based economy to a newly industrialised one. Despite it’s increasing economic growth rate of 6.2% in 2012, Indonesia still suffers from a relatively low level of economic development, as indicated by the HDI of 0.629 which is below 120 other economies. Mostly, this is a reflection of Indonesia’s low standard of living, as measured by its income per capita which remains approximately 3500 USD as of 2012.Through a number of new government incentives such as the liberalisation of trade and financial deregulation, the Indonesian economy is attempting to become more integrated with the global economy.

TRADE FLOWS

To a large extent, Indonesian trade regimes have undergone significant liberalization since the 1980s, and this was further deepened in the wake of the 1997/98 economic crisis. The government veered away from a policy of import substitution and replaced it with export led developments. Tariffs began to reduce significantly and the government also relaxed its network of import licencing restrictions. Additionally, annual deregulation and liberalisation packages aimed to reduce the barriers to foreign trade and investment. After the Asian financial crisis of the late 1990s, Indonesia continued to pursue trade liberalisation under the guidance of the IMF Structural Adjustment program where tariff and non-tariff barriers were curtailed and restrictions on foreign investment were eased. In essence, trade liberalisation and globalisation has improved Indonesia’s access to overseas export markets and has led to stronger economic growth.

The Indonesian economy has become increasingly integrated with the global economy though their participation in various global, regional and bilateral trade agreements in recent years. On a global scale, Indonesia has become a prominent member of the G20 major economies, and an active member of the WTO since 1995.Indonesia has supported the Doha round of trade negotiations as half of it’s population is employed in the rural sector, and it has hoped for reductions in agricultural protection in HIEs.

The association of South East Asian nations (ASEAN) has emerged as the most important organisation in the Asian region due to regional integration in this area. Indonesia has been an active member since its formation in 1967.The aims of this agreement is to promote free trade in this region by reducing the barriers to trade such as tariffs. Indonesia is also a prominent member of the APEC forum, which has aimed to advance regional and global trade and investment liberalisation. The most comprehensive and note worthy bilateral trade agreement that Indonesia is a part of is with Japan, which commenced in 2008. Japan accounts for around 16% of Indonesia’s exports and is their largest single export destination.

FINANCE FLOWS

During the globalisation era, Indonesia has reduced the barriers to financial and investment flows to encourage economic growth and development. Since the 1980s, Indonesia has pursued reforms in tax, has deregulated industry sectors and loosened its restrictions on foreign ownership. Indonesia undertook financial deregulation in 1983. Prior to this, the economy had most of the characteristics of a financially repressed system wherein the pattern of financial intermediation had become distorted, capital outflows were encouraged and the system generally became ineffective. However, when oil prices decreased in 1982, the government began to adjust its economic policies by undertaking tax and monetary reforms which included deregulating the financial sector in 1983. Although the devastating effect of the Asian financial crisis of the late 1990s was inevitable, financial deregulation allowed Indonesia to foster growth, diversify...
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