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This pathbreaking book analyzes a highly successful participatory development program in Indonesia, exploring its distinctive origins and design principles and its impacts on local conflict dynamics and social institutions.

This timely study examines the impact of policies on growth, employment and poverty reduction in Indonesia, reviewing the periods both before and after the 1997 financial crisis and drawing important implications for today’s policy-makers.

Indonesia has urbanized rapidly since its independence in 1945, profoundly changing its economic geography and giving rise to a diverse array of urban places.These places range from the bustling metropolis of Jakarta to rapidly emerging urban centers in hitherto largely rural parts of the country.

The most intriguing question about Indonesia’s economic development during the twentieth century is why the country’s growth performance has been so erratic and displayed such a high degree of discontinuity. This is connected with the fundamental question about the nature of long-run economic development in Indonesia.

The government of Indonesia in the second term of the Jokowi presidency has fully endorsed the concept of halal to become not only a sharia-driven state law but also an incentive for the advancement of the national economy and market. In addition, Jokowi wants Indonesia to become the centre of the global halal industry._x000B__x000B_In the history of Indonesian Islam, although the issue of halalness, being an unseparated part of Islamic doctrine, is not new, it had never been the role of the state to formalize it into state law prior to the legislation of State Law No. 33/2014 on Halal Legal Assurance._x000B__x000B_From the 1990s to 2014, halal matters including halal certification had been unofficially handled by the Council of Indonesian Ulama (MUI). Then, the Ministry of Religious Affairs (MORA) proposed that halal certification be officially handled by the government of Indonesia, not by Muslim organizations. The legislation of State Law No. 33/2014 reflects contestation between MUI and MORA regarding which institution should serve as the authority in certifying halal products._x000B__x000B_Promoting and advancing the halal project of Indonesia are related not only to commodification but also to theology. The choice of the Islamic method for determining halal can become a barrier to improving inclusive economic and market performance. The halal system in Indonesia follows the Shafi’i school of thought in Islamic law, which is very strict in defining the halalness of relevant products. However, a more flexible method of ijtihad (Islamic legal reasoning), which can accommodate the development of the halal market, is needed._x000B__x000B_Despite claims that the formalization of halalness through State Law No. 33/2014 accommodates universal and inclusive values, some religious minority groups worry that the law will shore up the shariatization agenda of the Muslim majority and marginalize religious minorities in terms of their lifestyle preferences._x000B__x000B_The legislation of State Law No. 33/2014 has allowed shariatization to be not merely an issue associated with political Islam, but one that through commodification is grounded in the everyday lives of Muslims and non-Muslims alike.

The creation of ASEAN Free Trade Area (AFTA) in 1992 and decentralization in 1999 mark the state restructuring in Indonesia. This book analyses the impact of state restructuring on regional economic development in Indonesia between 1993 and 2010. Regional economic analysis shows persistent and severe regional disparities throughout the period. Particularly, econometrics study found that decentralization has accelerated regional disparities whilst the AFTA effect is insignificant on regional economic growth. Furthermore, historical institutionalism analysis on two cities - the manufacturing industry in Batam and the creative economy in Bandung - shows that past and embedded local institutions provide the capacity to adapt and create new development paths. The book suggests the importance of local-specific policies that embrace local knowledge and institutions to develop regional specialization and competitive advantage. This book fills the gap in Indonesian literature that lacks studies on the integrated impact of decentralization and trade liberalization, both economically and politically.

Batam’s economic transformation has been accompanied by a marked degradation of its natural environment. Enforcement to protect the environment has often been inadequate on many fronts, exacerbated by population increases. Though regulations exist for the provision of public amenities like wastewater and sewerage treatment, existing facilities are run-down and ill-equipped to cope with the present demands. The capacity of reservoirs to meet the present demand for water is also strained because of the large population base, with illegal intrusion and squatters further threatening supplies. Economic and environmental imperatives can be reconciled if more emphasis and resources are put into enforcing regulations and protecting the environment.

Numerous studies have suggested that natural resource abundance is bad for development. In this context, Indonesia's rapid growth during the 1970s and 1980s seems remarkable. Why was Indonesia able to grow strongly and what are the implications of its experience for other resource abundant countries? I argue that its rapid growth was not simply a matter of policy elites making rational economic policy choices, but rather reflected two more fundamental factors: (i) the political victory of counter-revolutionary social forces over radical nationalist and communist social forces in Indonesia during the 1960s; and (ii) the country's strategic Cold War location and proximity to Japan. Accordingly, the main implication of its experience is that improved economic performance in resource abundant countries requires shifts in structures of power and interest and the emergence of external political and economic conditions that provide opportunities for growth.

KEY ISSUES Context: A slowdown in growth in major emerging market economies (EMEs) and decline in commodity prices, and more recently, a reversal in push factors tied to a prospective exit from extraordinarily easy global monetary conditions, has put pressure on Indonesia's balance of payments and heightened its vulnerability to shocks. Domestic policy accommodation and rising energy subsidies have also given rise to increased external and fiscal imbalances. Recent policy tightening, fuel price hikes, and exchange rate flexibility have been firmly aimed at reducing these pressures. Against this backdrop, discussions centered on actions needed to further buttress policy buffers in the face of heightened market volatility and to reduce structural impediments in support of broad-based growth. Outlook and risks: Growth is projected to slow to 5-5½ percent in 2013 and 2014. Inflation will likely peak at just below 10 percent at end2013, due mainly to the one-off effect of June fuel price increases and recent rupiah depreciation. The current account deficit is expected to exceed 3 percent of GDP in 2013 and 2014 on weak commodity exports. Reserves have also come under pressure, partly due to Bank Indonesia's heavy intervention in the foreign exchange market in mid-2013 in order to stem the rupiah's depreciation. In the near term, downside risks relate externally to a further adverse shift in funding conditions in EMEs and/or weaker-than-anticipated growth in these economies, notably spillovers from China and India, and domestically to a further weakening in investor sentiment, prompted by adverse external conditions and/or policy uncertainty. Key policy recommendations: Recent market volatility and reserve losses highlight the need to deal decisively with macroeconomic imbalances and contain financial stability risks. The current delay in tapering of unconventional monetary policies provides an opportunity to strengthen policy and financial buffers and improve market perceptions. Monetary policy should remain focused on anchoring inflation expectations and reducing balance of payments pressures; fiscal policy should support monetary policy in this effort, led by tax and subsidy reforms; and the exchange rate and bond yields should continue to reflect market conditions in order to facilitate an orderly adjustment to a shifting global environment. Careful monitoring of banks as financial conditions tighten and a firm closing of the gaps in the crisis management framework are needed to keep financial stability risks in check. Structural reforms should focus on a more predictable business climate and greater labor market flexibility.