Productivity and long term growth
Going for Growth 2014: Indonesia
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Indonesia demonstrated good resilience during the financial and economic crisis. As it strives to become one of the 10 largest economies in the world by 2025, its productivity growth must be enhanced through a wide range of structural reforms to address infrastructure bottlenecks, widespread informality, shortages of skilled labour and high barriers to competition.
Previous Going for Growth recommendations include:
- Enhance outcome and equity in education by boosting enrolment rates and improving teaching quality.
- Address infrastructure bottlenecks by improving the regulatory environment for infrastructure and increasing public expenditure.
- Reform labour regulation by reducing onerous severance payment replaced by introduction of unemployment benefits, and cap minimum wage increases to tackle informality.
- Reduce energy subsidies, in particular on fossil fuel and electricity while offering targeted support to the poor.
- Ease barriers to entrepreneurship and investment through simplified business licensing system, reduced barriers to FDI, and strengthened institutions to fight corruption.
Actions Taken: Notable reforms in these areas over the past two years include:
- The 2013 supplementary budget included additional financing for rural infrastructure projects.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Indonesia, better access to high-quality education will contribute to reduce income inequalities.