The world is finally recovering from the 2007–08 global financial crisis. After contracting sharply in 2009 and increasing slowly in the subsequent years, world real GDP growth returned to 3 per cent in 2017. Ten years after the crisis, it appears that growth is at last showing sustainable signs of recovery. Other challenges remain, however. Trade growth has slowed and, despite an improvement in 2017, remains lower than before the global financial crisis. The slowdown in trade growth has been attributed to cycli¬cal factors and to structural factors such as a lack of productivity growth and the maturation of global value chains. Protectionism is another factor, although, to date, it is not so much the increase in protectionist measures as the high level of uncertainty about trade policy that is affecting trade.

The policy uncertainty stems primarily from the perceived lack of ben¬efits from globalisation. Almost half the world's population—that is, more than 3 billion people—have to survive on $2.50 or less every day. The richest 10 per cent of the global population owns more than 85 per cent of the global wealth. Inequality has increased even in the countries where poverty has declined. These factors are widely seen as the main causes of the re-emergence of anti-globalisation sentiment around the world, prompting leaders to adopt populist and inward-looking policies. The electoral consequences have been surprising; they include the election of Rodrigo Duterte in the Philippines, the success of the ‘leave’ campaign in the Brexit referendum in the United Kingdom and the election of Donald Trump in the United States. Meanwhile, those in power show an increas¬ingly authoritarian inclination—Erdoğan in Turkey, Putin in Russia and Xi in China, to name a few—often by exploiting the public's misgivings about globalisation.

In Indonesia, the discontent with globalisation is apparent in rising nationalism, a rejection of foreign interference and a distrust of democracy that is reminiscent of the New Order. The disappointment with globalisa¬tion is not entirely unjustified. In Indonesia as in many other countries, globalisation has had both good and bad results. Trade always creates both winners and losers, and in the absence of a well-functioning com¬pensation mechanism and the free movement of labour across sectors, the winners appear to be concentrated disproportionately among a small number of elites. Corruption has only worsened this situation, allow¬ing the dark side of globalisation to dominate.

A friend once told me that Indonesia is a ‘disappointing’ country: it disappoints optimists because it never reaches its full potential, and it disappoints pessimists because they expect it to collapse at any moment. I think there is some truth in this joke. Indonesia is indeed a country that oscillates between optimism and pessimism.

It is a similar story with trade policy. As an archipelago made up of more than 17,000 islands, Indonesia naturally evolved as a free trader. Indonesian history is a history of trade. Yet the country's politicians, media and even academics are reluctant to openly embrace globalization and free trade. Indonesia also has a contradictory attitude towards international institutions: it deeply distrusts institutions such as the IMF and the World Bank yet is very enthusiastic about and participates actively in the G20 and the Association of Southeast Asian Nations (ASEAN).

Indonesia's active participation in the G20 is seen as one of the successes of Susilo Bambang Yudhoyono's presidency. During a meeting of G20 leaders in Pittsburgh, the president proudly shared Indonesia's experience with far-reaching policy changes in 2005 and 2008 that raised fuel prices and allocated the extra funding to the poor in the form of cash transfers and health and education programs. This policy had three main benefits: it created fiscal space, which was good for macroeconomic policy; it allowed the government to increase spending on the poor, which was good for income distribution and poverty reduction; and it reduced demand for fossil fuels and therefore carbon emissions, which was good for the environment. The Indonesian president's remarks informed a Pittsburgh communiqué that recommended countries ‘phase out and rationalize … inefficient fossil fuel subsidies while providing targeted support for the poorest’ (G20 2009: 3). But strangely, Indonesia itself is currently extremely hesitant about implementing another round of cuts in fuel subsidies.

Trade policy has swung from one extreme to another over the past 60 years. Indonesia disengaged from trade with the rest of the world in the early 1960s, then shifted to a very open regime later in the decade. The high-growth period from the 1970s to mid-1980s was accompanied by relatively high levels of protection, giving way to deregulation and other trade reforms in the late 1980s and 1990s.

The years of the 1980s witnessed a declining trend of trade protection in many countries in the world. In Indonesia, trade protection levels were relatively high from the 1970s up to the mid-1980s, before a substantial reduction as a result of various trade reforms. Despite a slow progress of trade reform in the 1990s, Indonesia has become a relatively open economy and deserves much credit for its unilateral liberalization. The trade regime became more open when the International Monetary Fund (IMF) entered following various unsuccessful attempts by the Indonesian Government to stabilize the rupiah. Unlike in Thailand and in other countries, IMF packages in Indonesia included trade reform which was normally beyond the mandate of the Fund. As discussed in Soesastro and Basri (2005), the structural adjustment programme encouraged a gradual reduction of import tariffs. In addition, as part of the structural reform programme of 15 January 1998, domestic trade in agricultural products, including rice, was fully deregulated. The clove marketing board owned by President Soeharto's son was eliminated. In February 1998 all other marketing arrangements were terminated, specifically those of cement and paper, while plywood cartels were dissolved. Formal and informal barriers to investment in palm oil plantations were removed, followed by the removal of all investment restrictions in wholesale and retail trades. Proposals for trade deregulation commonly associated with the World Bank had been captured in these IMF packages. The trade reform programme was obviously significant and has removed most of the non-tariff barriers.

Indonesia has been making efforts to increase efficiency by removing restrictions on trade, investment, and production, and streamlining procedures at the border. As a consequence it has been able to cut tariffs to an average of below 10 per cent. In general the Indonesian average tariff is relatively low compared to some Asian countries and to Mexico, Poland, Brazil, and Turkey. Furthermore, the implementation of the tariff reduction programme has reduced the un-weighted average applied tariff rate from 15.5 per cent in 1995 to 7.2 per cent in 2002 (WTO 2007). However, although the number of Indonesia's applied MFN (most-favoured nation) tariffs under 10 per cent decreased from 83.4 per cent of the total tariff lines in 2002 to 75 per cent in 2006, the share of duty-free tariff lines remain at 22 per cent.