Indonesia’s economy is the world’s 16th largest and has been growing at more than 6 percent annually in recent years. However, the country is subject to a number of structural economic problems, including a difficult investment climate, a growing current account deficit, a falling currency, and rising inflation.
On August 23, the Indonesian government announced an emergency fiscal package designed to narrow the current account deficit by promoting foreign investment, boosting exports, and reducing imports. Indonesia’s central bank on August 29 said it will raise interest rates to 7 percent in an effort to boost investor confidence in the rupiah. But the Indonesian economy remains a victim of its own protectionist measures. We examine this dynamic by the numbers.
The amount Singapore-based DBS, Southeast Asia’s largest financial institution, offered for Bank Danamon Indonesia before CEO Piyush Gupta withdrew the offer. DBS hoped for a 67 percent stake in Danamon in what would have been the largest purchase of a financial institution in Southeast Asian history, but was undercut by a 2012 Indonesian government provision limiting foreign investors to 40 percent ownership of domestic banks.
The number of measures Indonesia implemented in recent years that are discriminatory against foreign investors, according to the Global Trade Alert (GTA). By contrast, GTA estimates that all other ASEAN nations combined implemented 65 such measures.
The limit placed on 2014 minimum wage increases under proposed legislation that was announced on July 22. The minimum wage increased by 44 percent in 2013, and Industry Minister M.S. Hidayat warned that another sharp increase, such as the 50 percent boost proposed by labor unions, would lead to massive layoffs in labor-intensive industries. Vice President Boediono on August 27 urged local leaders not to raise the minimum wage just to please voters in the run-up to the 2014 elections.
The rupiah’s ranking in Morgan Stanley’s list of the “fragile five” currencies most vulnerable to high inflation. The group also includes the currencies of Turkey, India, Brazil, and South Africa.