1.1 Economic background of Bosnia and Herzegovina (B&H)
Bosnia and Herzegovina was among the poorer areas of the old Yugoslav Federation and remains one of the poorer countries in Europe. Agriculture remains in private hands, but farms have been small and inefficient, and net food imports increased dramatically in the aftermath of the 1992-1995 war. Many industries are still overstaffed, reflecting the legacy of the centrally-planned economy, though limited privatization has improved efficiency in certain sectors.
Transition economy: Bosnia and Herzegovina sees the long-term goal of EU membership as a driver to further economic growth and development. Due to Bosnia and Herzegovina's strict currency board regime, inflation has remained relatively low. The banking sector has been fully reformed, with a significant inflow of foreign banks providing businesses with easier access to capital and a better range of banking services. Lending has slowed significantly since 2008. B&H's most immediate task remains economic revitalization. The country needs meaningful progress in structural reforms to strengthen the basis for sustained, private sector-led growth. B&H's top economic priorities are: acceleration of EU integration; strengthening the fiscal system; public administration reform; World Trade Organization (WTO) membership. To date, work on these priorities has been inconsistent. The country has received a substantial amount of foreign assistance and will need to demonstrate its ability to implement its economic reform agenda in order to advance its stated goal of EU accession. In 2009, B&H undertook an International Monetary Fund (IMF) standby arrangement, necessitated by sharply increased social spending and a fiscal crisis precipitated by the global economic downturn.
1.2 Economic background of Indonesia
Indonesia has a market-based economy in which the government plays a significant role. There are 141 state-owned enterprises, and the government administers prices on several basic goods, including fuel, rice, and electricity. In the mid-1980s, the government began eliminating regulatory obstacles to economic activity. The steps were aimed primarily at the external and financial sectors and were designed to stimulate employment and growth in the non-oil export sector. Most analysts recognized Indonesia as a newly industrializing economy and emerging major market. The Asian financial crisis of 1997 altered the region's economic landscape. In the aftermath of the 1997-98 financial crisis, the government took custody of a significant portion of private sector assets via debt restructuring, but subsequently sold most of these assets, averaging a 29% return. Indonesia has since recovered, albeit more slowly than some of its neighbours, by recapitalizing its banking sector, improving oversight of capital markets, and taking steps to stimulate growth and investment, particularly in infrastructure. Although growth slowed to 4.5% in 2009 given reduced global demand, Indonesia was the third-fastest growing G-20 member, trailing only China and India. Indonesia’s improving growth prospects and sound macroeconomic policy have many analysts suggesting that it will become the newest member of the “BRIC” grouping of leading emerging markets. In December 2011, Fitch Ratings upgraded Indonesia’s sovereign debt rating to investment grade. A similar upgrade to investment grade is expected from Standard and Poor’s and Moody’s. In reaction to global financial turmoil and economic slowdown in late 2008, the government moved quickly to improve liquidity, secure alternative financing to fund an expansionary budget and secure passage of a fiscal stimulus program worth more than $6 billion. Key actions to stabilize financial markets included increasing the deposit insurance guarantee twentyfold, to IDR 2 billion (about U.S. $235,000); reducing bank reserve requirements; and introducing new foreign exchange regulations...
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