External events have dominated economicdevelopments for Indonesia over the past quarter. Theoutlook for global growth has weakened and the euro zonesovereign debt crisis has intensified. International riskaversion and market volatility have increased, although theyremain well below levels seen in late 2008. Equity marketshave fallen and emerging markets have seen capital outflows,putting downward pressure on their currencies.Indonesia's domestic economic performance has continuedto be strong but, as in other countries in the region, itsfinancial markets have not been immune from this turbulence.Indonesia's domestic drivers of growth, its solidfiscal position, accumulation of reserves, and strengthenedfinancial sector performance make it relatively well-placedto deal with shocks arising from the above scenarios. Thisimproved resilience to external shocks, and a strong policyresponse, was seen during the 2008- 09 crisis. The finalpiece looks at the core development challenge of how to makegrowth more inclusive, as well as higher, focusing on ananalysis of the province of East java.
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