Indonesian economic recovery process and the role of government

Abstract Indonesia is currently known as a country adopting the wrong sequencing in their liberalization process. Despite impressive economic performance in the 30 years before the recent crisis, Indonesia suffers from several weaknesses and vulnerabilities in both banking and corporate arenas. The Indonesian economic crisis was caused by a sudden loss of market confidence leading to abrupt capital outflow. The IMF plan was designed to regain and restore the market by imposing wide-ranging programs, but the designated steps are not without criticism. Sustainability of economic recovery in Indonesia depends on two important programs, stability in the macroeconomic environment, and the implementation of a sound and credible restructuring of corporate debts along with strengthening of the banking institution. Public policy process outcomes are becoming complicated and difficult to predict under the democratic system. Indonesia’s legal and judicial systems are still very weak, and often unable to safeguard public interest. Such weak quality institutions combined with the new political competition will, at least in the short run, result in more policy distortions, with the burden of cost shouldered by public interest.