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Indonesia has been affected less severely by the global crisis than neighbouring countries. Although Indonesian exports have been hit hard by the collapse of commodity prices and falling demand for manufacturing products, GDP growth has remained surprisingly buoyant.
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We argue that the strength of domestic demand has been an important driver of growth during the crisis. However, given Indonesia’s reliance on exports for sustaining economic growth, it is important to deepen integration within the domestic economy and improve the country’s trade competitiveness. To this end, Indonesia has to invest massively in its physical and ‘soft’ infrastructure to reduce domestic transactions costs.
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