How the Macroeconomic Environment and Investment Climate Have Affected the Manufacturing Sector [book]

Gonzalo Varela, Swati Ghosh, Sjamsu Rahardha
2012 unpublished
Contributors: Gonzalo Varela, Swati Ghosh and Sjamsu Rahardha The performance of Indonesia's manufacturing sector has lagged over the past decade. This is seen in the decline in growth after the Asian financial crisis, by the sector's decline relative to other sectors within the economy, and relative to countries in the region. This note documents the effects of the challenging macro and external environment on the profits of manufacturing firms, and on the uncertainty they face, and argues
more » ... ace, and argues that these adverse conditions partially explain the stagnation of the sector in the past decade. The changes in incentives appear to have particularly affected labor-intensive sectors, with important consequences for job creation. Policies to promote growth in the manufacturing sector should aim at alleviating pressures on manufacturing costs by: (i) reducing rigidities in the market for labor; (ii) promoting competition in the market for services; and (iii) providing incentives for productivityenhancing technology adoption, while reducing profit uncertainty by (iv) maintaining a low and predictable rate of inflation and (v) keeping exchange rate volatility within reasonable limits.
doi:10.1596/26717 fatcat:xxjwbaksgng4dldmdzappl4y74