Front Matter

Front Matter

Luis Breuer, Jaime Guajardo, and Tidiane Kinda
Published Date:
August 2018
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“Indonesia has never excelled in the art of self-promotion. But this publication, written by those whose jobs are to conduct rigorous and timely monitoring of the state of the country’s economic health, and the country’s policy practitioners, might give a little help. It contains up-to-date analyses of the country’s important progress and diagnosis of the major challenges it faces. A must-read for those who have stakes and interests in the country.”


11th Vice President, Indonesia; former Governor, Bank Indonesia

“This ambitious book captures vividly the daunting challenges facing policymakers in many commodity-exporting economies struggling to achieve sustained rapid growth without capsizing in the turbulent waters of today’s global financial markets. It is an inspiring story of the policymakers’ determination to strengthen macroeconomic resilience to external shocks while striving to unleash the economic potential of the country to meet the expectations of people for higher standards of living.”

Hoe Ee Khor

Chief Economist, ASEAN+3 Macroeconomic Research Office

“It has been 20 years since the 1998 financial, economic, and political crisis of Indonesia—and we are still here and going strong despite dire predictions at the time. The book comes at a timely juncture and takes a “back to the future approach.” That is, there is a thorough review of the stabilization, restructuring, and reforms to get us here and, more importantly, a forward-looking view. The book does a good job of laying out the challenges Indonesia will face, as well as the potential opportunities from a young population, digital technologies, and a rising Asia. Whether or not we agree on the priorities identified if Indonesia is to move forward, the book provides an excellent platform for rich policy discourse.”

Mari Pangestu

Professor of International Economics, University of Indonesia

Realizing Indonesia’s Economic Potential


Luis E. Breuer • Jaime Guajardo • Tidiane Kinda


© 2018 International Monetary Fund

Cover design: IMF Creative

Cataloging-in-Publication Data

IMF Library

Names: Breuer, Luis E., | Guajardo, Jaime. | Kinda, Tidiane. | International Monetary Fund.

Title: Realizing Indonesia’s economic potential / editors: Luis E. Breuer, Jaime Guajardo, Tidiane Kinda.

Description: Washington, DC : International Monetary Fund, [2018] | | Includes bibliographical references.

Identifiers: ISBN 9781484337141 (paper)

Subjects: LCSH: Indonesia—Economic conditions. | Economic development—Indonesia. | Finance, Public—Indonesia. | Monetary policy—Indonesia.

Classification: LCC HC447.R42 2018

DISCLAIMER: The views expressed in this book are those of the authors and do not necessarily represent the views of the IMF’s Executive Directors, its management, or any of its members. The boundaries, colors, denominations, and any other information shown on the maps do not imply, on the part of the International Monetary Fund, any judgment on the legal status of any territory or any endorsement or acceptance of such boundaries.

Recommended citation: Breuer, Luis E., Jaime Guajardo, and Tidiane Kinda, eds. 2018. Realizing Indonesia’s Economic Potential. Washington, DC: International Monetary Fund.

ISBN: 978–1–48433–714–1 (paper)

  • 978–1–48435–590–9 (ePub)

  • 978–1–48435–591–6 (Mobi)

  • 978–1–48435–595–4 (PDF)

Please send orders to:

International Monetary Fund, Publication Services

P.O. Box 92780, Washington, D.C. 20090, U.S.A.

Tel.: (202) 623–7430 Fax: (202) 623–7201




Indonesia has made remarkable progress over the past 20 years. This is no accident. The country transformed itself by pursuing sound economic policies and by harnessing the incredible ingenuity and diversity of its people. Strong and stable economic growth sharply reduced poverty, raising living standards for millions of people and enabling the emergence of a vibrant middle class.

Indonesia is one of the world’s largest emerging market economies, a founding member of the Association of Southeast Asian Nations (ASEAN), and a member of the Group of 20. Playing host to the 2018 IMF and World Bank Annual Meetings in Bali is further testament to Indonesia’s increasingly prominent role in the global policy debate. These meetings present a unique opportunity to showcase the impressive social and economic achievements of Indonesia and Asia. The world can learn much from the region, including the so-called ASEAN way of reaching across borders. This is beautifully captured in the official motto of Indonesia: “Bhinneka Tunggal Ika,” or “Unity in Diversity.”

Indonesia is well positioned to pursue its further transformation toward an even more prosperous and inclusive society by taking advantage of several beneficial trends, including its young and expanding labor force, the rapid growth of the digital economy, and the growing role of Asia in the global economy. However, capitalizing on this favorable environment to achieve higher growth and provide quality jobs to the growing workforce will need to be supported by critical policy reforms, including mobilizing revenues to finance development spending and supporting reform of product, labor, and financial markets.

This book explores the key issues policymakers will likely face in the coming years. It discusses policy priorities that can enable Indonesia to continue to prosper, including the need to upgrade its “soft infrastructure”—that is, the institutions, policy frameworks, and toolkits used to manage the economy. The IMF is a committed partner in Indonesia’s transformation, sharing knowledge of international best practice through policy advice, technical assistance, and training. We are “gotong royong”—working together to achieve a common goal.

Christine Lagarde

Managing Director

International Monetary Fund


This book has been a collective endeavor involving staff from many IMF departments and a number of Indonesian authorities. We thank the contributing authors for their close collaboration and enthusiasm in exploring various aspects of the Indonesian economy. The book benefited greatly from the support of the staff in the IMF’s Asia and Pacific Department, particularly, Kenneth Kang, Deputy Director. We are also grateful for the valuable input of many IMF colleagues at various stages of the project, including Calixte Ahokpossi, Tubagus Feridhanusetyawan, Elena Loukoianova, and Seng Guan Toh.

We strongly appreciate the constructive comments and feedback we received from Ibu Aida S. Budiman and other colleagues at Bank Indonesia, from colleagues at the Ministry of Finance of Indonesia, from the office of the IMF Executive Director covering Indonesia, and from other Indonesian colleagues.

We are indebted to the IMF Communications Department’s Editorial and Publications Division. Special thanks go to Linda Griffin Kean, Gemma Diaz, and Rumit Pancholi for managing the project and to Patricia Loo, Sherrie L. Brown, and Lucy Morales for their editorial contributions.

Finally, thanks to Agnes Isnawangsih and Nong Jotikasthira for their excellent work in the preparation of this book.

Luis E. Breuer, Jaime Guajardo, and Tidiane Kinda



Dr. Muhamad Chatib Basri was formerly Indonesia’s minister of finance and chairman of Indonesia’s Investment Coordinating Board. He teaches at the University of Indonesia and is the chairman of the advisory board of the Mandiri Institute. He was Ash Centre senior fellow at the Harvard Kennedy School, Pacific fellow at the University of California at San Diego, and a visiting professor at the Australian National University (ANU) and Nanyang Technological University. Dr. Basri is a member of the advisory board of the Centre for Applied Macroeconomic Analysis at the ANU and a member of the World Bank Advisory Council on Gender and Development. He holds a PhD from the ANU.

Luis E. Breuer is Division Chief of the Indonesia and the Philippines Division of the Asia and Pacific Department of the International Monetary Fund. Mr. Breuer has led IMF missions to a number of countries in Asia, the Pacific, Central America, and the Caribbean, and served as resident representative in Bolivia, Nicaragua, and Peru. Prior to joining the IMF, he was executive director of the Central Bank of Paraguay, economic advisor to a number of Latin American countries, and taught at the University of Illinois at Urbana-Champaign, from where he holds a PhD in economics.

Jorge A. Chan-Lau, a Senior Economist at the IMF and senior research fellow at the Risk Management Institute of the National University of Singapore, is responsible for the IMF’s internal training program on macro-financial analysis and for the external financial sector policies course. He has contributed to the Global Financial Stability Report and participated in Article IV and Financial Sector Assessment Program missions to advanced economies, emerging market economies, and low-income countries. He has provided advisory work to central banks in various countries, including Canada, Chile, Singapore, and South Africa. He holds PhD and MPhil. degrees from Columbia University, and a BS from Pontificia Universidad Católica del Perú.

Teresa Curristine is a Deputy Division Chief at the IMF’s Fiscal Affairs Department. She leads projects and teams working on public financial management issues in Latin America and Asia. Prior to joining the IMF, she worked for the Organisation for Economic Co-operation and Development (OECD), where she ran the OECD Network on Performance and Results and managed projects on public sector modernization and improving public sector efficiency. She published several articles and edited three books: Public Financial Management and Its Emerging Architecture, Performance Budgeting in OECD Countries, and Modernising Government: The Way Forward. She was a lecturer at the University of Oxford, from where she received her PhD.

Mitali Das is Deputy Division Chief in the IMF’s Strategy, Policy and Review Department, where she supervises the operation and extension of external balance assessment. She is an author of the IMF’s External Balance Assessment methodology and was Cochair of the IMF’s 2015 External Sector Report. Previously, she worked on Group of Twenty issues, including the Mutual Assessment Program. Prior to joining the IMF, Ms. Das was an associate professor at Columbia University, Harvard University, Dartmouth College, and the University of California at Davis. Her research interests are inequality, technology, external balance, and econometrics. She holds a PhD from the Massachusetts Institute of Technology.

Ruud de Mooij is Chief of the Tax Policy Division of the IMF’s Fiscal Affairs Department. The division delivers an intensive program of technical assistance, performs analytical work, and supports IMF country teams on tax policy issues. Before joining the IMF, Mr. de Mooij was professor of public economics at Erasmus University in Rotterdam. He has published extensively on tax issues, including in the American Economic Review and the Journal of Public Economics. His current research focuses on income taxation, international tax issues, and revenue mobilization in developing economies. Mr. de Mooij is also a research fellow at the Universities of Oxford, Bergen, Mannheim, and Munich.

Jaime Guajardo is a Senior Economist at the Asia and Pacific Department of the IMF, working as Desk Economist for Indonesia. He joined the IMF in 2004, and worked in the European Department, IMF Institute, and Research Department before joining the Asia and Pacific Department. Prior to joining the IMF, he worked as a researcher at the Central Bank of Chile. Mr. Guajardo holds a PhD in economics from the University of California, Los Angeles, and bachelor’s and master’s degrees in economics from Universidad de Chile.

Agnes Isnawangsih is a Research Officer in the Asia and Pacific Department of the IMF, working on Indonesia and the Philippines. She joined the IMF in 2001 and worked in the Strategy, Policy and Review Department before joining the Asia and Pacific Department. Prior to joining the IMF, she worked as an economist at the Bank Indonesia. She holds a master’s degree in business and economics from the University of California, Santa Barbara; a master’s degree in international business administration from the University of Indonesia; and a bachelor’s degree in agronomy from Bogor Agricultural Institute.

Hui Jin received her undergraduate and master’s degrees in economics from Tsinghua University and a PhD from Harvard University. She was a fixed-income investment strategist at the State Street Bank before she joined the IMF in 2009. At the IMF, she has worked in the Monetary and Capital Markets Department, African Department, and Fiscal Affairs Department. As a fiscal economist, she participated in IMF program negotiations with Malawi, Jordan, and Greece, and is currently working on fiscal issues in Indonesia. She also provides technical assistance to country authorities around the world on expenditure policies.

Heedon Kang is Senior Financial Sector Expert in the IMF’s Monetary and Capital Markets Department. His research focuses on monetary and macropru-dential policy. He has been involved in Financial Sector Assessment Programs for Brazil, Indonesia, Ireland, the Netherlands, and Singapore, covering stress tests, corporate and household vulnerabilities analyses, and assessment of macroprudential policies. Before joining the IMF, he worked at the Bank of Korea, developing macroeconomic forecasting models, conducting monetary and macroprudential policy simulations, and setting up a medium-term inflation targeting framework. He holds a PhD in economics from the University of Minnesota at Twin Cities.

Tidiane Kinda is Senior Economist in the IMF’s Asia and Pacific Department, working on Indonesia. He was previously Special Assistant to the Director and Economist in the Regional Studies Division in the same department. He also worked in the African and the Fiscal Affairs Departments, including as a fiscal economist for the euro area, Canada, Croatia, and Moldova, and a Desk Economist for Chad. Prior to joining the IMF, he worked in the World Bank’s Research Department. He has published widely, including on public finances, inequality, and capital flows. He holds a PhD from the University of Auvergne (France), where he taught macroeconomics and applied econometrics. He is a research fellow at Columbia University.

Elena Loukoianova has worked at the IMF since 2002, and currently is Deputy Division Chief in the Asia and Pacific Department. She has been working on issues including financial surveillance, balance sheet analysis, and macroprudential policies. In 2008–10, she worked as director and senior economist in emerging market research for emerging Europe research for Barclays Capital, as well as a senior economist at the European Bank for Reconstruction and Development. Her current research focuses on political risks, global liquidity, household debt, and systemic risks. She holds a PhD in economics from the University of Cambridge, England, and a PhD in mathematics from Ulyanovsk State University, Russia.

Yinqiu Lu is a Senior Economist in the IMF’s Strategy, Policy and Review Department. She has been with the IMF since 2005 and has worked on a wide range of policy and country issues, including external sector assessment, sovereign asset and liability management, financial stability assessment, and capital market development. Her research interests include emerging market fixed-income markets, sovereign wealth funds, and commodity and credit derivatives. She holds a PhD in economics from the City University of New York and a BA from Nanjing University, China.

Ken Miyajima is Senior Economist in the IMF’s African Department, focusing on monetary policy and financial sector issues. He joined the IMF in 2005, and has also worked in the Monetary and Capital Markets Department and the European Department. He also spent four years at the Bank for International Settlements as senior economist in the Emerging Markets Unit. Before joining the IMF, he worked in the private sector, including at JPMorgan and McKinsey & Co in Tokyo. He holds a bachelor’s degree in economics from Hitotsubashi University, Japan, and a PhD in economics from the University of California, Los Angeles, and studied at Ecole des Hautes Etudes Commerciales de Paris.

Suahasil Nazara is chairman of the Fiscal Policy Agency at the Ministry of Finance of Indonesia. Previously, he was policy coordinator at the Secretariat of the National Team for the Acceleration of Poverty Reduction in the Office of the Vice President and a member of the National Economic Committee. He was previously a professor of economics at the University of Indonesia. He earned his bachelor’s degree in economics from the University of Indonesia, his master of science from Cornell University, and his PhD from the University of Illinois at Urbana-Champaign.

Masahiro Nozaki is a Senior Economist in the Asia and Pacific Department of the IMF. He is also the Mission Chief for the Federated States of Micronesia. For the IMF, he has worked on fiscal issues in Indonesia, the Philippines, and Sri Lanka. His research interests include public expenditure policy and social security reforms. He holds a PhD in economics from Brown University.

Jongsoon Shin is a Senior Economist in the Strategy, Policy and Review Department of the IMF. He is also the Mission Chief for Tuvalu. He worked on Indonesia, Japan, Korea, Mongolia, and Papua New Guinea in the Asia and Pacific Department. His research interests include corporate/banking-sector issues, public-private investment, and macrostructural reforms. Prior to joining the IMF in 2011, he worked for the Korean government, including the Ministry of Finance and Economy and the Financial Services Commission. He holds a finance MBA from the Wharton School of the University of Pennsylvania, and earned his BA from the Seoul National University.

Juan Toro is Assistant Director in the IMF’s Fiscal Affairs Department, responsible for managing revenue administration technical assistance to Europe, Asia, North Africa, the Middle East, and Central Asia. He has led and participated in IMF technical assistance missions in revenue administration to more than 30 countries. Before joining the IMF, he was the commissioner of the Chilean tax administration and received in 2004 the Wharton-Infosys Business Transformation Award for leading the online tax administration model in Chile. He has participated on the boards of various Chilean companies. He graduated with a master’s degree in economics and management and civil industrial engineering from the University of Chile.

Giovanni Ugazio is an Economist in the Financial Institutions Division of the IMF’s Statistics Department. He has worked at the IMF for five years, mainly focusing on the analysis of financial and private sector balance sheets, as well as technical assistance and surveillance work related to monetary statistics and financial soundness indicators. Prior to joining the IMF, Mr. Ugazio worked as an economist at the European Central Bank and in the private sector.

Ulric Eriksson von Allmen, a Swedish national, is an Assistant Director in the IMF’s Monetary and Capital Markets Department and head of the department’s Surveillance and Review Division. He led the IMF’s work on the 2018 Financial Sector Assessment Program for Indonesia. Before joining the Monetary and Capital Markets Department in late 2014, he was a senior staff member in the IMF’s Western Hemisphere Department, where he led the work on Chile, Argentina, and Uruguay, and before that he was a Division Chief in the Strategy, Policy and Review Department. He studied economics at Gothenburg, Stockholm, and Columbia Universities.



automatic exchange of information


Asian financial crisis


anti–money laundering


alternative minimum tax


Association of Southeast Asian Nations


Bank Indonesia


board of commissioners


board of directors


balance sheet approach


capital adequacy ratio


combating the financing of terrorism


corporate income tax


compliance risk management


Common Reporting Standard


digital financial services


Directorate General of Customs and Excises


Directorate General of Taxation


domestic systemically important banks


economic complexity index


emergency liquidity assistance


Financial Action Task Force


financial conglomerate


foreign direct investment


financial technology


Financial Sector Assessment Program


Flexible System of Global Models


free trade agreement


global financial crisis


government finance statistics


Global Integrated Monetary and Fiscal


global vector autoregressive


global value chain


Group of Twenty




Herfindahl-Hirschman index


high-wealth individual


insolvency and creditor rights


international investment position


information technology


Committee for Acceleration of Priority Infrastructure Delivery


Komite Stabilitas Sistem Keuangan (Financial System Stability Committee)


Kredit Usaha Rakyat (People’s Business Loan Program)


liquidity-coverage ratio


local currency


Laku Pandai (branchless banking)


Lembaga Penjamin Simpanan (Indonesia Deposit Insurance Corporation and also the bank resolution agency)


monetary and financial statistics


Ministry of Finance


micro, small, and medium-sized enterprises


medium-term revenue strategy


nonbank financial institution


nonfinancial corporation


nonperforming loan


nontariff measure


Otoritas Jasa Keuangan, Financial Services Authority


Law of the Republic of Indonesia on Financial Services Authority, No. 21 of 2011


probabilities of default


Prevention and Resolution of Financial System Crisis Law, No. 9 of 2016


public-private partnership


revealed comparative advantage


rest of the world




Special Administrative Region


small and medium-sized enterprises


subnational government


Strategi Nasional Keuangan Inklusif (National Strategy for Financial Inclusion)


state-owned enterprise


sales tax on luxury goods


total factor productivity


taper tantrum


ultra-high-wealth individuals


vector autoregression


value-added tax


World Trade Organization

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