Deregulation and Development in Indonesia

By Farrukh Iqbal; William E. James | Go to book overview
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CHAPTER 2

The Evolution of Economic Policy Reform: Determinants, Sequencing and Reasons for Success

William E. JamesandSherry M. Stephenson


CONVENTIONAL WISDOM ON THE CONTENT AND SEQUENCING OF REFORMS

The economic policy reform process is typically viewed as comprising two parts, stabilization and structural adjustment. The stabilization part works towards the correction of imbalances in foreign payments, government budgets and the money supply, with the aim of controlling inflation and reducing macroeconomic instability. The structural adjustment part typically covers measures aimed at changing the structure of production (towards tradable goods) and increasing the efficiency and flexibility of the economy.Deregulation and Development in Indonesia

It is generally argued that stabilization should be a precondition of longer-term structural adjustment policies on the assumption that such policies can succeed only if carried out in a stable macroeconomic framework. This is because reform packages depend on attaining and maintaining relative prices that reflect economic scarcities. This is true for domestic relative prices (between factors of production), for the cost of borrowing and for the ratio between domestic and foreign prices. An inflationary environment weakens the competitiveness of a country’s industries to

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