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| Economic System: Macroeconomics |
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In many regions progress has been made in recovering from the financial crisis. But major economic problems remain at the
center and these could adversely affect outlying areas and precipitate intergroup violence.
Until the end of the fourth quarter last year, the economy performed fairly well, roughly in line with the rest of
the region. However, the recent leadership crisis and the standoff between the president and parliament have led to a
dangerous situation where the budget deficit may rise to 6% of GDP. The main economic challenge is to stabilize the
rupiah, and to increase the value of the rupiah to approach again its 1997 worth. Observers believe that the elite is
unwilling to make the necessary sacrifices to achieve currency stability. Ordinary people understand the importance of
import and export prices but without a strong and committed leader there is no one to represent their interests in this
regard.
Other problems include serious government underfunding. Poor funding impedes the government’s ability to function
effectively and without corruption in this period of transition. The solution to this problem will not be found in further
burdening the small number of existing taxpayers. Instead, a total revamping and broadening of the tax base is required,
which may take some time to achieve and may confront opposition from the public. The recent success of the Indonesian tax
agency in increasing the proportion of people registered for taxes, however, is an encouraging sign.
Recommendations:
- Efforts must be made to find ways to represent the interests of ordinary people in economic decision-making at the
local level, and to transmit their views to the central political system.
- The Indonesian government must be supported in its efforts to stabilize the rupiah.
- To combat government underfunding, the Indonesian tax system should continue to push for higher levels of tax registration, especially among wealthy Indonesians.
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