Indonesia Economic Quarterly, December 2015

Abstract

The Indonesia Economic Quarterly (IEQ)
 has two main aims. First, it reports on the key developments
 over the past three months in Indonesia’s economy, and
 places these in a longerterm and global context. Based on
 these developments, and on policy changes over the period,
 the IEQ regularly updates the outlook for Indonesia’s
 economy and social welfare. Second, the IEQ provides a more
 in-depth examination of selected economic and policy issues,
 and analysis of Indonesia’s medium-term development
 challenges. It is intended for a wide audience, including
 policymakers, business leaders, financial market
 participants, and the community of analysts and
 professionals engaged in Indonesia’s evolving economy. This
 paper discusses about the economic conditions of Indonesia
 for the year 2015. Emerging market assets rebounded in
 October 2015 after the sharp losses recorded in August and
 September, when the uncertainty about the Chinese economic
 slowdown and the U.S. interest rate outlook was particularly
 high. Despite a more favorable market sentiment, capital
 flows to emerging economies have remained weak and borrowing
 costs relatively high. In addition to tight financing
 conditions, Indonesia faced subdued external demand for its
 exports in the near term and persistently low commodity
 prices over the medium run. In 2015, fire in Indonesia cost
 nearly twice that of reconstruction following the 2004
 tsunami in Aceh. Agriculture and forestry have sustained
 losses and damages in trillions. Sustained exposure to haze
 could also lead to the volcano effect, i.e., a decrease in
 plant productivity in the short term due to limited sun
 exposure and a deleterious effect on plant physiology and
 photosynthesis. The recurring nature of Indonesia’s fire
 crisis is of particular concern. Another potential step in
 Indonesia’s new reform process was the country’s signaling
 its intention to join the Trans-Pacific Partnership (TPP)
 agreement in the near future. Whether membership
 materializes or not, the agreement is likely to have a
 limited impact on trade, because import tariffs in member
 countries are already low and Indonesia has trade agreements
 with most of them.