A Review of Indonesia’s Economic Competitiveness

This paper explains why Indonesia’s competitiveness is falling, compared with other countries, while the economic growth seemed quite robust in recent years. After the commodity boom and quantitative easing policy was over, Indonesia is struggling to compete in the world market resulting a low rate of participation in the global production network. In addition, unclear industrial policy, downstreaming strategy and value added obsession are some of the misguided approaches to rejuvenate Indonesia’s industry. A substantial reform is essential to change the old paradigms in trade and industry such as populist, protectionist and inward-looking policy. Instead, an open trade regime, facilitating investment policy and a more flexible labor market are much-needed strategies to increase Indonesia’s competitiveness in the future.