Edited by Oliver Morrissey, Ricardo Lopez and Kishor Sharma
Chapter 21: Trade, growth and external shocks in Indonesia
Indonesia experienced rapid economic growth, at about 6 to 8 per cent per annum, prior to the 1997/98 Asian financial crisis (AFC), which was largely achieved through labour-intensive industrialization and modernization in agriculture. By the mid-1990s, rapid economic growth led to a significant fall in poverty and Indonesia was regarded as a new Asian Tiger along with Malaysia and Thailand. Unfortunately, when the 1997/98 AFC broke out, its economic growth dropped by 13 per cent, largely due to a fall in labour-intensive manufacturing exports, leading to a rise in poverty. However, like other Asian economies, the Indonesian economy recovered quickly from this crisis, but was hit again by the Global Financial Crisis (GFC) in 2008/09. The impact of the GFC, however, was not as severe as the AFC and the country managed well to maintain positive economic growth. Since 2010, Indonesia has been affected by a third crisis from the eurozone region. The chapter examines how external shocks have impacted on Indonesia’s growth performance, with a special focus on trade. It outlines the types of shocks and their impacts on Indonesia, discusses how Indonesia’s foreign trade sector responded to external shocks and the key transmission channels through which they affected its exports and imports.
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