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Financial Services Trade Liberalisation in Indonesia: Policy Patterns and Economic Linkages

Financial Services Trade Liberalisation in Indonesia: Policy Patterns and Economic Linkages
15 January 2024
Fauziah Zen, Lili Yan Ing, Pyan Amin Muchtar, Muhammad Raihan Ramadhan, Sebastian Benz, Charles Christmann, Matteo Fiorini, Alexander Jaax
Fauziah Zen, Lili Yan Ing, Matteo Fiorini
ASEAN Framework Agreement on Services, AFAS, Indonesia, OECD

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Indonesia's ongoing financial sector reforms align with regional commitments, particularly the ASEAN Framework Agreement on Services (AFAS), designed to enhance efficiency and competitiveness within the services sector. This report employs the OECD Services Trade Restrictiveness Index (STRI) to evaluate Indonesia's financial sector policies in comparison with other sectors and emerging economies. 

The study reveals that narrowing the gap to the best-performing country by half in each sector would result in an average reduction of Indonesia's STRI by 0.18 across all sectors. This, in turn, would alleviate over one-third of the current regulatory restrictiveness on services trade. The anticipated decline in service trade costs is estimated at approximately 27% on average across all sectors. 

Beyond the overall reduction in trade costs, the study identifies varying levels of impact from the financial sector on the performance of different industries. These findings shed light on the interconnectedness between financial services liberalization and broader economic dynamics within Indonesia. 

Indonesia's commitment to financial sector reforms, in line with regional agreements, holds the potential to significantly enhance the efficiency and competitiveness of its services sector. The observed reductions in STRI and service trade costs underscore the positive outcomes of such reforms, with implications for broader economic linkages and industry performance. 

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