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RESTRICTED WT/TPR/G/401 4 November 2020 (20-7798) Page RESTRICTED WT/TPR/G/401 4 November 2020 (20-7798) Page: 1/23 Trade Policy Review Body Original: English TRADE POLICY REVIEW REPORT BY INDONESIA Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), the policy statement by Indonesia is attached. Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Indonesia. WT/TPR/G/401 • Indonesia - 2 - Contents 1 OVERVIEW ................................................................................................................. 3 2 ECONOMIC DEVELOPMENT ......................................................................................... 4 2.1 Macroeconomic Performance ........................................................................................ 4 2.1.1 Inflation ................................................................................................................. 6 2.1.2 Exchange Rate ........................................................................................................ 7 2.1.3 Recent Development on Fiscal Policy .......................................................................... 7 2.2 Improvement on Investment Climate ............................................................................ 8 2.3 Financial Sectors ........................................................................................................ 9 2.4 Economic Challenges to Indonesia .............................................................................. 10 3 INTERNATIONAL TRADE ENGAGEMENT .................................................................... 10 3.1 Bilateral .................................................................................................................. 11 3.2 Regional .................................................................................................................. 11 3.3 Multilateral .............................................................................................................. 12 3.4 Roles at the World Trade Organization ........................................................................ 12 3.4.1 Agriculture ............................................................................................................ 12 3.4.2 Non-Agriculture Market Access (NAMA) .................................................................... 13 3.4.3 Services ............................................................................................................... 14 3.4.4 Trade-related Aspect of Intellectual Property Rights (TRIPS) ....................................... 14 3.4.5 Environmental Issue .............................................................................................. 14 3.4.6 Trade Facilitation ................................................................................................... 14 3.4.7 Aid for trade.......................................................................................................... 14 3.4.8 Fisheries ............................................................................................................... 15 3.4.9 Priority Issues ....................................................................................................... 15 4 TRADE AND TRADE RELATED POLICY ....................................................................... 15 4.1 National Economic Policy Packages ............................................................................. 15 4.2 Sectoral Policies ....................................................................................................... 15 4.2.1 Agriculture ............................................................................................................ 15 4.2.2 Fisheries ............................................................................................................... 16 4.2.3 Manufacture .......................................................................................................... 17 4.2.4 Services ............................................................................................................... 18 4.2.5 Public Stockholding (PSH) ....................................................................................... 18 4.2.6 Standardization ..................................................................................................... 18 4.2.7 Micro, Small and Medium-Sized Enterprises (MSMEs) ................................................. 19 4.2.8 Intellectual Property Rights ..................................................................................... 20 4.2.9 State Trading Enterprises ....................................................................................... 20 4.2.10 Trade Facilitation ................................................................................................. 21 4.2.11 Information and Communication Technologies (ICT) ................................................. 22 5 WAY FORWARD ........................................................................................................ 22 WT/TPR/G/401 • Indonesia - 3 - 1 OVERVIEW 1.1. Indonesia is predicted to enter new phase in its economic development, benefiting from demographic dividends contributed by the significant size of its labour force. According to 2018 census data, around 68% of Indonesia's total population (179.13 million people) is in the productive age (15-64 years old). And to ensure that this demographic bonus works towards Indonesia's favour, the Government strives to provide Indonesia's human capital resources with good quality education and training. 1.2. In the period between 2015-2018, the expansion of domestic economic activities resulted in the creation of an additional 9 million jobs. The unemployment rate fell to 5.34% in 2018, compared to the 5.94% level in 2014. On the other hand, GDP per capita continued to increase from USD 3,531 in 2014 to USD 3,927 in 2018, equaling to GNI per capita of USD 3,820. The poverty level lowered to a single digit (9.82% in 2018), a tribute to the effectiveness of poverty prevention programmes. Furthermore, a Gini ratio of 0.389 in 2018 compared to 0.414 in 2014 testified a reduction in income inequality. As to the Human Development Index (HDI), it recorded an increase from 68.9 in 2014 to 71.39 in 2018. 1.3. During the same 2015-2018 timeframe, the Indonesian economy grew steadily at an average rate of 5.0% per year, higher than the 4.5% per year average incurred by other developing countries. Amongst the factors contributing to this achievement were the implementation of various structural reforms, including policies that improve the investment climate, enhance industrial competitiveness, upgrade logistics efficiency, stimulate export, promote tourism, and strengthen people's purchasing power. 1.4. Positive performances in various sectors of the economy drove this relatively high economic growth of Indonesia, with the service industry as the main engine growth. Service industry dominance continued into 2019, with remarkable growth of the information and communication services industry (9.41%) as well as the transportation and warehousing industry (6.40%). In contrast, manufacturing industry only grew 3.8%. Meanwhile, the non-oil and gas manufacturing sector grew above 4% in 2019. 1.5. On the expenditure side, investment was the major driver of economic growth, with an expansion rate averaging 4.45% per year. The Government implemented a number of fiscal incentives, and demonstrated serious efforts in simplifying investment regulations and procedures to improve investment climate, along with developing supporting infrastructure to facilitate a higher level of business activities. During the same period, household consumption managed to grow an average of 5.0% per year. Moreover, government consumption grew by an average of 3.0% per year amid declining state revenues. Meanwhile, both exports and imports of real goods and services grew at an average of slightly below 3% per year. 1.6. The endeavour to maintain economic stability was rewarded with the well-managed inflation and exchange rates, increasing foreign exchange reserves, and the state of current account deficit within its safety limit. Between 2015-2018, inflation rates were stable, averaging 3.3% per year. Amid efforts to control the exchange rate and current account deficit, the balance of payments continued its relatively strong position. Meanwhile, foreign exchange reserves increased from USD 111.9 billion in 2014 to USD 120.7 billion in December 2018. 1.7. Fiscal policies took into account medium-term fiscal sustainability, and resulted in a debt ratio lower than 30% of GDP, as well as a budget deficit and primary balance that continued to shrink and led to positive values by 2018. 1.8. The strong and stable economic performance has trickled down as increased welfare for the Indonesian people not only during the period of this trade policy review, but also projected for some years following it. However, a number of prevailing uncertainties will cast a shadow the performance of the global economy, which will also directly and indirectly affect the performance of Indonesia's economy. Global economic growth and trade are expected to slowing down by an estimate of 3.6 and 3.8% per year respectively, for the years 2020-2024. The price of Indonesia's main international export commodities, including
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