Economics, trade, politics and infrastructure of Indonesia

This section provides you with recent information on Indonesia’s economic performance, economic prospects, trade and investments, politics and international relations and infrastructure.

Economic performance

Since overcoming the Asian financial crisis of the late 1990s, Indonesia has recorded considerable economic growth. Yet, as in many respects, Indonesia’s economy reveals huge regional differences. Despite an emerging economy, its growth moderated due to decreasing demand for export commodities. In 2010 GDP grew 6.4%, which reached a low point of 4.8% but is slowly rising again to 5.3% in 2017 (World Bank, 2017). Strong public investments in infrastructure and policy reforms to stimulate private investment are expected to boost Indonesia’s mixed economy growth up to over 5% in 2016, according to the ADB. Infrastructure development and education and healthcare programs are present priorities in the RPJMN. Four five-year medium-term plans (RPJMN) develop into Indonesia’s economic planning that follows a 20-year development plan, currently spanning from 2005 to 2025. Due to decreasing demand in major markets and lower prices for export commodities, exports dropped by more than 15% in 2015. Imports fell even steeper with almost 20%, weighed down by subdued investment, devaluation of the rupiah and lower oil imports. Currenly Indonesia has an account deficit of 1.8% of GDP (Bank Indonesia, 2017). Inflation reached 3.53% in 2016 (Inflation.eu, 2017).

Economic Outlook

The Economist Intelligence Unit forecasts a solid rate of economic development in Indonesia for the coming years. An average of well above 5% growth between 2016 and 2020 and a real GDP growth of 4.3% up to 2050. Progress in improvement of the investment climate and reducing the corruption contribute to a favourable business environment, especially an increase in production and Indonesia’s relatively young population are key assets. Yet successful implementation of these reforms to ensure a positive impact on the investors’ climate remains a challenge. According to ADB, domestic risks include delay in the public infrastructure projects. While external risks are related to performance of the main trading partners, affecting exports and continued weakness in prices for export commodities.

Key indicators
Population

255.5 mln (2016)

Capital

Jakarta

Currency

Indonesian rupiah

Time zone

various (UTC +7 to +9)

GDP at market prices

US$ 872.6 billion (2016)

Real GDP growth rate

5.3% (2016)

GDP per capita

US$ 3,416 (2016)

Doing Business In Index*

91 out of 190 (2016)

Corruption Index**

90 out of 176 (2016)

Source: WorldBank (2016)
* doingbusiness.org
** transparency.org

Trade and investments

Indonesia boasts the largest economy in the Association of Southeast Asian Nations (ASEAN), having the largest population (over 2.5 times of the second populous country The Philippines) and accordingly the highest nominal GDP US$872.6 bn in 2016 (ABD, 2017). Manufactured goods, such as electrical appliances and textiles, are the main driver of Indonesia’s exports, counting for over two-thirds of the total exports in 2015 (EIU, 2016). Followed by mining and other sector products, including oil and gas. Leading export markets are Japan, China, Singapore and the US. Leading suppliers are the same, although in a different order, except for South Korea in place of the US. Main imports are raw materials and auxiliary materials (including machinery and equipment, chemicals and fuels) capital goods and consumer goods. Next to manufactured goods, tourism, marine fisheries and aquaculture are promising for further economic expansion. Indonesia ranks 91 out of 190 countries surveyed in the World Bank’s Doing Business 2016. Neighboring countries Singapore and Malaysia score high at the list, second and 23rd respectively. In east Asia, Indonesia scores well above Myanmar (170) but below Thailand (46). Foreign direct investment is estimated to be at  110.00 IDR trillion at the end of this years quarter, 2017 (Trading Economics, 2017). Singapore, China, Japan, Hongkong and and the Netherlands are among the top investing countries. A series of reform packages are introduced aiming to further improve the business investors’ climate. Yet economic nationalism remains popular hence policy reforms are likely to be fragmentary.

Politics and international relations

After the political turmoil that followed the fall of Suharto in 1998, the political situation seems to have stabilized. Since 1999 Indonesia has had a multi-party system and in 2004 the president and vice-president were directly elected for the first time. So far no political party has managed to win an overall majority of seats in the Indonesian House of Representatives, resulting in coalition governments. The current president Joko Widodo, best known as Jokowi, was elected in July 2014 for his first five-year term. The present government, including the Indonesian Democratic Party of Struggle and the party of Joko Widodo, aims to return Indonesia to a 7% growth, to boost investment and create jobs. During the past five years a wave of nationalism and protectionism came into being. Policies across sectors, including export and import restrictions and the imposition of local content requirement have been introduced. Illegal fishing is a serious problem for Indonesia with its stretched-out archipelagic coastline. The minister of Fishery and Maritime affairs, Susi Pudjiastuti, seizes foreign vessels in the Exclusive Economic Zone (EEZ) to emphasize her policy. Indonesia is a member of the World Trade Organization (WTO), Organization of the Petroleum Exporting Countries (OPEC), G-20, a driving force within the Association of Southeast Asian Nations (ASEAN) and the Cairns Group of Fair Trading Nations, an interest group of 20 agricultural exporting countries.

Infrastructure

The World Economic Forum Global Competitiveness Report ranked Indonesia 36th out of 137, in between neighboring countries Malaysia (23rd) and Philippines (56th). Indonesia is outperforming in market share. Areas where Indonesia in under performing compared to other East Asia and Pacific countries are: technical readiness (ICT use), labour market efficiency and health and primary education (The Global Competitiveness Index 2017-2018 edition). Java, the island where Jakarta is located and where over half of the Indonesian population lives, dominates Indonesia, also economical sense. Keep in mind the immense regional differentiation, both culturally (ethnically and linguistically) and economically. As some 250 languages and dialects are spoken, next to Bahasa Indonesia, the official language. Its geographical character, the thousands of islands, has shaped Indonesia’s transport system. Sea transport is crucial for economic integration and for national and international trade. Its main ports and harbours are Bitung, Cilacap, Cirebon, Jakarta, Kupang, Palembang, Semarang, Surabaya, and Makassar. These are managed by the various Indonesia Port Corporations. Indonesia has over 20,000 km of navigable waterways, vital for transportation, especially on Kalimantan, Sumatra and Papua, since rivers are often not wide enough and roads or railways not as much developed.

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