Economy of Indonesia
Encyclopedia
Indonesia
is the largest economy in Southeast Asia and is one of the emerging market
economies of the world. The country is also a member of G-20 major economies
. It has a market economy
in which the government plays a significant role by owning more than 164 enterprises and administers prices on several basic goods, including fuel
, rice
, and electricity
. In the aftermath of the financial and economic crisis that began in mid-1997, the government took custody of a significant portion of private sector assets through acquisition of nonperforming bank loan
s and corporate assets through the debt restructuring
process. Since 2004, the national economy has recovered and undergone another period of rapid economic growth. Indonesia is quite a humid and tropical country with many tourist attractions.
to economic policy that quickly brought inflation down, stabilized the currency, rescheduled foreign debt, and attracted foreign aid and investment. (See Berkeley Mafia
). Indonesia was until recently Southeast Asia's only member of OPEC, and the 1970s oil price raises provided an export revenue windfall that contributed to sustained high economic growth rates, averaging over 7% from 1968 to 1981. High levels of regulation and a dependence on declining oil prices, growth slowed to an average of 4.3% per annum between 1981 and 1988. A range of economic reforms were introduced in the late 1980s including a managed devaluation of the rupiah to improve export competitiveness, and de-regulation of the financial sector, Foreign investment flowed into Indonesia, particularly into the rapidly developing export-oriented manufacturing sector
, and from 1989 to 1997, the Indonesian economy grew by an average of over 7%.
GDP per capita grew 545% from 1970 to 1980 as a result of the sudden increase in oil export revenues from 1973 to 1979.
High levels of economic growth from 1987–1997 masked a number of structural weaknesses in Indonesia's economy. Growth came at a high cost in terms of weak and corrupt
institutions, severe public
indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia’s natural resources, and a culture of favors and corruption in the business elite. Corruption particularly gained momentum in the 1990s, reaching to the highest levels of the political hierarchy as Suharto became the most corrupt leader according to Transparency International
's corrupt leaders list. As a result, the legal system was very weak, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy
. Banking practices were very unsophisticated, with collateral-based lending the norm and widespread violation of prudential regulations, including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restriction
s all created economic distortions.
(IMF) reached agreement on an economic reform program aimed at macroeconomic stabilization and elimination of some of the country's most damaging economic policies, such as the National Car Program and the clove
monopoly, both involving family members of President Soeharto. The rupiah remained weak, however, and President Soeharto was forced to resign in May 1998. In August 1998, Indonesia and the IMF agreed on an Extended Fund Facility (EFF) under President B.J Habibie that included significant structural reform targets. President Abdurrahman Wahid
took office in October 1999, and Indonesia and the IMF signed another EFF in January 2000. The new program also has a range of economic, structural reform and governance targets.
The effects of the financial and economic crisis were severe. By November 1997, rapid currency depreciation had seen public debt reach US$60 bn, imposing severe strains on the government's budget. In 1998, real GDP contracted by 13.7%. The economy reached its low point in mid-1999 and real GDP growth for the year was 0.3%. Inflation reached 77% in 1998 but slowed to 2% in 1999.
The rupiah, which had been in the Rp 2,600/USD1 range at the start of August 1997 fell to 11,000/USD1 by January 1998, with spot rates around 15,000 for brief periods during the first half of 1998. It returned to 8,000/USD1 range at the end of 1998 and has generally traded in the Rp 8,000–10,000/USD1 range ever since, with fluctuations that are relatively predictable and gradual.
For 2006, Indonesia's economic outlook was more positive. Economic growth accelerated to 5.1% in 2004 and reached 5.6% in 2005. Real per capita income has reached fiscal year 1996/1997 levels. Growth was driven primarily by domestic consumption, which accounts for roughly three-fourths of Indonesia's gross domestic product. The Jakarta Stock Exchange
was the best performing market in Asia in 2004 up by 42%. Problems that continue to put a drag on growth include low foreign investment levels, bureaucratic red tape, and very widespread corruption which causes 51.43 trillion Rupiah or 5.6573 billion US Dollar or approximately 1.4% of GDP to be lost on a yearly basis. However, there is very strong optimism with the conclusion of peaceful elections during the year 2004 and the election of the reformist president Susilo Bambang Yudhoyono
.
The unemployment rate in February 2007 was 9.75%. Despite a slowing global economy, Indonesia’s economic growth accelerated to a ten-year high of 6.3 percent in 2007. This growth rate was sufficient to reduce poverty from 17.8 to 16.6 percent based on the Government’s poverty line and reversed the recent trend towards jobless growth, with unemployment falling to 8.46 percent in February 2008. Unlike many of its more export-dependent neighbors, it has managed to skirt the recession, helped by strong domestic demand (which makes up about two-thirds of the economy) and a government fiscal stimulus package of about 1.4 percent of GDP, announced earlier this year.
After India and China, Indonesia is currently the third fastest growing economy in the Group of Twenty (G20) industrialized and developing economies. The $512 billion economy expanded 4.4 percent in the first quarter from a year earlier and last month, the IMF revised its 2009 forecast for the country to 3-4 percent from 2.5 percent. Indonesia enjoyed stronger fundamentals with the authorities implemented wide-ranging economic and financial reforms, including a rapid reduction in public and external debt, strengthening of corporate and banking sector balance sheets and reducing bank vulnerabilities through higher capitalization and better supervision.
projects. In addition, the presence of US banks, manufacturers, and service providers expanded, especially after the industrial and financial sector reforms of the 1980s. Other major foreign investors included India
, Japan
, the United Kingdom
, Singapore
, the Netherlands
, Qatar
, Hong Kong
, Taiwan
and South Korea
.
The economic crisis made continued private financing imperative but problematic. New foreign investment approvals fell by almost two-thirds between 1997 and 1999. The crisis further highlighted areas where additional reform was needed. Frequently cited areas for improving the investment climate were establishment of a functioning legal and judicial system, adherence to competitive processes, and adoption of internationally acceptable accounting and disclosure standards. Despite improvements in the laws in recent years, Indonesia's intellectual property rights regime remains weak; lack of effective enforcement is a major concern. Under Suharto, Indonesia had moved toward private provision of public infrastructure, including electric power, toll roads, and telecommunications. The financial crisis brought to light serious weaknesses in the process of dispute resolution, however, particularly in the area of private infrastructure projects. Although Indonesia continued to have the advantages of a large labor force, abundant natural resources and modern infrastructure, private investment in new projects largely ceased during the crisis.
As of 28 June 2010, the Indonesia Stock Exchange had 341 listed companies with a combined market capitalization of $269.9 billion. As at November 2010, two thirds of the market capitalization was in the form of foreign funds and only around one percent of the Indonesian population have stock investments. Efforts are further being made to improve the business and investment environment. Within the World Bank's
Doing Business Survey, Indonesia rose to 122 out of 178 countries in 2010, from 129 in the previous year. Despite these efforts, the rank is still below regional peers and an unfavourable investment climate persists. For example, potential foreign investors and their executive staff cannot maintain own bank accounts in Indonesia, unless they are tax-paying local residents (paying tax in Indonesia for their worldwide income).
From 1990 to 2010, Indonesian companies have been involved in 3,757 mergers and acquisitions
as either acquiror or target with a total known value of $137bn. In 2010, 609 transactions have been announced which is a new record. Numbers had increased by 19% compared to 2009. The value of deals in 2010 was 17 bil. USD which is the second highest number ever.
equipment, machinery, aviation
parts, chemicals, and agricultural products. U.S. imports from Indonesia in 1999 totaled $9.5 billion and consisted primarily of clothing, machinery and transportation equipment, petroleum, natural rubber, and footwear. Economic assistance to Indonesia is coordinated through the Consultative Group on Indonesia
(CGI), formed in 1989. It includes 19 donor countries and 13 international organizations that meet annually to coordinate donor assistance.
The U.S. Agency for International Development (USAID) has provided development assistance to Indonesia since 1950. Initial assistance focused on the most urgent needs of the new republic, including food aid, infrastructure rehabilitation, health care, and training. Through the 1970s, a time of great economic growth in Indonesia, USAID played a major role in helping the country achieve self-sufficiency in rice production and in reducing the birth rate.
USAID's current program aims to support Indonesia as it recovers from the financial crisis by providing food aid, employment generating activities, and maintaining critical public health services. USAID is also providing technical advisers to help the Indonesian Government implement economic reforms and fiscal decentralization and is supporting democratization and civil society development activities through non-governmental organizations.
For purchasing power parity comparisons, the US dollar is exchanged at 3,094.57 rupiah only.
Mean wages were $2.32 per manhour in 2009.
provisionally valued food crop yields at 213,529,700 million rupiahs in 2006 thus registering over 35% growth since 2003. Badan Pusat Statistik provisionally valued estate crop yields at 62,690,900 million rupiahs in 2006 thus registering over 34% growth since 2003. Badan Pusat Statistik provisionally valued livestock and its derivative products at 51,276,400 million rupiahs in 2006 thus registering over 37% growth since 2003.
Badan Pusat Statistik provisionally valued forestry at 30,017,000 million rupiahs in 2006 thus registering over 63% growth since 2003. Badan Pusat Statistik provisionally valued fishery at 72,979,900 million rupiahs in 2006 thus registering over 60% growth since 2003.
Indonesia was the only Asian member of the Organization of Petroleum Exporting Countries (OPEC) outside of the Middle East
until 2008 and is currently a net oil importer. In 1999, Crude and condensate output averaged 1.5 Moilbbl per day, and in the 1998 calendar year the oil and gas sector, including refining, contributed approximately 9% to GDP. As of 2005, Indonesian crude oil and condensate output was 1.07 Moilbbl per day. This is a substantial decline from the 1990s, due primarily to aging oil fields and a lack of investment in oil production equipment. This decline in production has been accompanied by a substantial increase in domestic consumption, about 5.4% per year, leading to an estimated US$1.2 billion cost for importing oil in 2005.
The state owns all petroleum
and mineral
rights. Foreign firms participate through production-sharing and work contracts. Oil and gas contractors are required to finance all exploration, production, and development costs in their contract areas; they are entitled to recover operating, exploration, and development costs out of the oil and gas produced.
Indonesia's fuel production has declined significantly over the years, owing to aging oil fields and lack of investment in new equipment. As a result, despite being an exporter of crude oil, Indonesia is now a net importer of oil products. It had previously subsidized fuel prices to keep prices low, costing US$ 7 billion in 2004 . The current president has mandated a significant reduction of government subsidy of fuel prices in several stages . The government has stated the cuts in subsidies are aimed at reducing the budget deficit to 1% of gross domestic product (GDP) this year, down from around 1.6% last year. At the same time, in order to alleviate economic hardships, the government has offered one-time subsidies to qualified citizens.
Indonesia is the world's largest tin market. Although mineral production traditionally centered on bauxite
, silver
, and tin
, Indonesia is expanding its copper
, nickel
, gold
, and coal
output for export markets.
In mid-1993, the Department of Mines and Energy reopened the coal sector to foreign investment, with the result that the leading Indonesian coal producer now is a joint venture between UK firms - BP
and Rio Tinto. Total coal production reached 74 million metric tons in 1999, including exports of 55 million tons. From January to August 2011, the coal production was 235 million tons and targeted 2011 coal production between 340 to 370 million tons. Not all of the productions can be exported due to there are Domestic Market Obligation (DMO) regulation which should fullfil the domestic market. In 2012, the DMO is 24.72 percent. And starting 2014, there are no low-grade coal exports allowed, so the upgraded brown coal
process which crank up the calorie value of coal from 4,500 kcal/kg to 6,100 kcal/kg will be built in South Kalimantan
and South Sumatra
.
Two US firms operate three copper/gold mines in Indonesia, with a Canadian
and British
firm holding significant other investments in nickel and gold, respectively. In 1998, the value of Indonesian gold production was $1 billion and copper, $843 million. Receipts from gold, copper, and coal comprised 84% of the $3 billion. Earned in 1998 by the mineral mining sector. India fortune groups like Vedanta Resources
and Tata Group
have significant mining operations in Indonesia.
April 2011: With additional of Tayan, West Kalimantan
Alumina project which produce 5 percent of the world's alumina production, Indonesia will be the world's second largest Alumina producer. The project will not make the ores to become Aluminium
due to there are 100 types of Alumina derivatives which can be developed further by other companies in Indonesia.
Textile, leather products and footwear industry was valued at 90,871,700 million rupiahs in 2006 thus registering over 34% growth since 2003.
Wood and wood products industry was valued at 44,410,400 million rupiahs in 2006 thus registering over 48% growth since 2003.
Paper and printing products industry was valued at 39,968,900 million rupiahs in 2006 thus registering over 43% growth since 2003.
Fertilizers, chemicals and rubber products industry was valued at 95,765,000 million rupiahs in 2006 thus registering over 68% growth since 2003.
Cement and non-metallic quarry products industry was valued at 29,015,100 million rupiahs in 2006 thus registering over 50% growth since 2003.
Iron, steel and other basic metals industry was valued at 20,492,200 million rupiahs in 2006 thus registering over 52% growth since 2003.
Transport equipment, machinery and apparatus industry was valued at 221,891,800 million rupiahs in 2006 thus registering over 87% growth since 2003.
Other manufacturing industries were valued at 7,148,300 million rupiahs in 2006 thus registering over 67% growth since 2003.
April 2011, after more than 40 years Toyota has developed into a strong production base for the domestic and export markets. In the next two years the car market is expected to reach one million unit a year which Toyota and also its subsidiary company Daihatsu get a market share about 40 percent.
In 2010, Indonesia sales 7.6 million motorcycles, which mainly produce in Indonesia with almost 100 percent local components. Honda led the market with a 50.95 percent market share, followed by Yamaha with 41.37 percent market share.
Indonesia has expressed interest recently in possible use of nuclear plants
.
Road transport was valued at 81,449,500 million rupiahs in 2006 thus registering over 106% growth since 2003.
Sea transport was valued at 16,120,700 million rupiahs in 2006 thus registering over 34% growth since 2003.
River, lake and ferry transport was valued at 4,510,700 million rupiahs in 2006 thus registering over 53% growth since 2003.
Air transport was valued at 14,685,200 million rupiahs in 2006 thus registering over 96% growth since 2003.
Other services allied to transport industry were valued at 24,868,900 million rupiahs in 2006 thus registering over 49% growth since 2003.
Other government services were valued at 64,290,900 million rupiahs in 2006 thus registering over 67% growth since 2003.
Amusement and recreational services were valued at 10,018,800 million rupiahs in 2006 thus registering over 46% growth since 2003.
Personal and household services were valued at 100,247,900 million rupiahs in 2006 thus registering over 69% growth since 2003.
report, Indonesia is among the world's top ten remittance receiving countries with value of totalling $7 billion.
May 2011: There are 6 million Indonesian citizens working overseas, 2.2 million of whom reside in Malaysia and another 1.5 million in Saudi Arabia
.
Now, one decade later, Indonesia has moved out of crisis and into a situation in which the country once again has sufficient financial resources to address its development needs. This change has come about as a result of prudent macroeconomic policies, the most important of which has been very low budget deficits. Also, the way in which the government spends money has been transformed by the 2001 ‘big bang’ decentralization, which has resulted in over one-third of all government spending being transferred to sub-national governments by 2006. Equally important, in 2005, spiraling international oil prices caused Indonesia’s domestic fuel subsidies to run out of control, threatening the country’s hard won macroeconomic stability. Despite the political risks of major price hikes in fuel driving more general inflation, the government took the brave decision to slash fuel subsidies.
This decision freed up an extra US$10 billion for government spending on development programs. Meanwhile, by 2006 an additional US$5 billion had become available thanks to a combination of increased revenues boosted by steady growth of the overall economy, and declining debt service payments, a hangover from the economic crisis. This meant that in 2006 the government had an extra US$15 billion to spend on development programs. The country has not seen “fiscal space” of such magnitude since the revenue windfall experienced during the oil boom of the mid-1970s. However, an important difference is that the 1970s oil revenue windfall was just that: a lucky and unforeseen financial boon. In contrast, the current fiscal space has been achieved as a direct result of sound and carefully thought through government policy decisions.
However, while Indonesia has made tremendous progress in freeing up financial resources for its development needs, and this situation is set to continue in the newt few years, subsidies continue to place a heavy burden on the government’s budget. The 2005 reductions on subsidies notwithstanding, total subsidies still accounted for some US$10 billion in government spending in 2006, or a significant 15 percent of the total budget.
Thanks to the decision of the Habibie government (May 1998 to August 2001) to decentralize power across the country in 2001, increasingly high shares of government spending are being channeled through sub-national governments. As a result, provincial and district governments in Indonesia now spend 37 percent of total public funds, which represents a level of fiscal decentralization that is even higher than the OECD average.
Given the level of decentralization that has occurred in Indonesia and the fiscal space now available, the Indonesian government has a unique opportunity to revamp the country’s neglected public services. If carefully managed, this could allow the lagging regions of eastern Indonesian to catch up with other more affluent areas of the country in terms of social indicators. It could also enable Indonesian to focus on the next generation of reforms, namely improving quality of public services and targeted infrastructure provision. In effect, the correct allocation of public funds and the careful management of those funds once they have been allocated have become the main issues for public spending in Indonesia going forward.
For example, while education spending has now reached 17.2 percent of total public spending ─ the highest share of any sector and a share of 3.9 percent of GDP in 2006, compared with only 2.0 percent of GDP in 2001 ─ in contrast total public health spending remains below 1.0 percent of GDP. Meanwhile, public infrastructure investment has still not fully recovered from its post-crisis lows and remains at only 3.4 percent of GDP. One other area of concern is that the current level of expenditure on administration is excessively high. Standing at 15 percent in 2006, this suggests a significant waste of public resources.
. This development continued throughout the 1980s and into the 1990s despite the oil counter-shocks. During these periods, GDP level rose at an average rate of 7.1%. Indonesia saw consistent growth, with the official poverty rate falling from 60% to 15%. Despite this development, an estimated 13.33% of the population (2010 estimate) remains below the poverty line.
At the Indonesian Chamber of Commerce and Industry (Kadin) meeting at Makassar
on April 2011, Disadvantaged Regions Minister said there are 184 regencies classified as disadvantaged areas in Indonesia with around 120 regencies were located in the eastern part of Indonesia.
administration (1970–1981), never once was the inflation less than 10% annually. The inflation slowed during mid-1980s, however, the economy was also languid due to the decrease of oil price that reduced its export revenue dramatically. The economy was again experiencing rapid growth between 1989-1997 due to the improving export-oriented manufacturing sector, still the inflation rate was higher than economic growth, and this caused widening gap among several Indonesians. The inflation peaked in 1998 during the Asian financial crisis, with over 58%, causing the raise in poverty level as bad as the 1960s crisis. During the economic recovery and growth in recent years, the government has been trying to decline the inflation rate. However, it seems that Indonesian inflation has been affected by the global fluctuation and domestic market competition. As of 2010, the inflation rate was approximately 7%, when its economic growth was 6% (Note that economic growth rates already take inflation into account, so this comparison by no means implies economic reduction). To date, inflation is affecting Indonesian lower middle class, especially those who can't afford food after price hikes.
Based on JBIC Fiscal Year 2010 survey (22nd Annual Survey Report) found that in 2009, Indonesia has the highest satisfaction level in net sales and profits for the Japanese companies.
, Indonesia has the highest growth rate of High Net Worth Individuals
(HNWI) predicted among the 10 most Asian economies. By 2015, Indonesia will have up to 99,000 wealthy individuals with total wealth $478 billion. HNWI means individuals with $1 million or more in investable assets excluding their primary residence.
rice, cassava (tapioca), peanuts, rubber, cocoa, coffee, palm oil, copra; poultry, beef, pork, eggs
Exchange rates:
Indonesian rupiah (IDR) per US dollar - 9,698.9 (2008), 9,143 (2007), 9,159.3 (2006), 9,704.7 (2005), 8,938.9 (2004)
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
is the largest economy in Southeast Asia and is one of the emerging market
Emerging markets
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
economies of the world. The country is also a member of G-20 major economies
G-20 major economies
The Group of Twenty Finance Ministers and Central Bank Governors is a group of finance ministers and central bank governors from 20 major economies: 19 countries plus the European Union, which is represented by the President of the European Council and by the European Central Bank...
. It has a market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
in which the government plays a significant role by owning more than 164 enterprises and administers prices on several basic goods, including fuel
Fuel
Fuel is any material that stores energy that can later be extracted to perform mechanical work in a controlled manner. Most fuels used by humans undergo combustion, a redox reaction in which a combustible substance releases energy after it ignites and reacts with the oxygen in the air...
, rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
, and electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
. In the aftermath of the financial and economic crisis that began in mid-1997, the government took custody of a significant portion of private sector assets through acquisition of nonperforming bank loan
Non-performing loan
A Non-performing loan is a loan that is in default or close to being in default. Many loans become non-performing after being in default for 3 months, but this can depend on the contract terms....
s and corporate assets through the debt restructuring
Debt restructuring
Debt restructuring is a process that allows a private or public company – or a sovereign entity – facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its...
process. Since 2004, the national economy has recovered and undergone another period of rapid economic growth. Indonesia is quite a humid and tropical country with many tourist attractions.
History
In the 1960s, the economy deteriorated drastically as a result of political instability, a young and inexperienced government, and economic nationalism, which resulted in severe poverty and hunger. By the time of Soekarno's downfall in the mid-1960s, the economy was in chaos with 1,000% annual inflation, shrinking export revenues, crumbling infrastructure, factories operating at minimal capacity, and negligible investment. Following President Soekarno's downfall in the mid-1960s, the New Order administration brought a degree of disciplineAusterity
In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. Austerity policies are often used by governments to reduce their deficit spending while sometimes coupled with increases in taxes to pay back creditors to...
to economic policy that quickly brought inflation down, stabilized the currency, rescheduled foreign debt, and attracted foreign aid and investment. (See Berkeley Mafia
Berkeley Mafia
The Berkeley Mafia was term given to a group of U.S.-educated Indonesian economists whose efforts brought Indonesia back from dire economic conditions and the brink of famine in the mid-1960s. They were appointed in the early stages of the 'New Order' administration. Almost three decades of...
). Indonesia was until recently Southeast Asia's only member of OPEC, and the 1970s oil price raises provided an export revenue windfall that contributed to sustained high economic growth rates, averaging over 7% from 1968 to 1981. High levels of regulation and a dependence on declining oil prices, growth slowed to an average of 4.3% per annum between 1981 and 1988. A range of economic reforms were introduced in the late 1980s including a managed devaluation of the rupiah to improve export competitiveness, and de-regulation of the financial sector, Foreign investment flowed into Indonesia, particularly into the rapidly developing export-oriented manufacturing sector
Secondary sector of industry
The secondary sector of the economy or industrial sector includes those economic sectors that create a finished, tangible product: production and construction.-Function:...
, and from 1989 to 1997, the Indonesian economy grew by an average of over 7%.
GDP per capita grew 545% from 1970 to 1980 as a result of the sudden increase in oil export revenues from 1973 to 1979.
High levels of economic growth from 1987–1997 masked a number of structural weaknesses in Indonesia's economy. Growth came at a high cost in terms of weak and corrupt
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
institutions, severe public
indebtedness through mismanagement of the financial sector, the rapid depletion of Indonesia’s natural resources, and a culture of favors and corruption in the business elite. Corruption particularly gained momentum in the 1990s, reaching to the highest levels of the political hierarchy as Suharto became the most corrupt leader according to Transparency International
Transparency International
Transparency International is a non-governmental organization that monitors and publicizes corporate and political corruption in international development. It publishes an annual Corruption Perceptions Index, a comparative listing of corruption worldwide...
's corrupt leaders list. As a result, the legal system was very weak, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
. Banking practices were very unsophisticated, with collateral-based lending the norm and widespread violation of prudential regulations, including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restriction
Export restriction
Export restrictions, or a restriction on exportation, are limitations on the quantity of goods exported to a specific country or countries by a government.An export restriction may be imposed:...
s all created economic distortions.
Asian Financial Crisis
The Asian Financial Crisis that began to affect Indonesia in mid-1997 became an economic and political crisis. Indonesia's initial response was to float the rupiah, raise key domestic interest rates, and tighten fiscal policy. In October 1997, Indonesia and the International Monetary FundInternational Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(IMF) reached agreement on an economic reform program aimed at macroeconomic stabilization and elimination of some of the country's most damaging economic policies, such as the National Car Program and the clove
Clove
Cloves are the aromatic dried flower buds of a tree in the family Myrtaceae. Cloves are native to the Maluku islands in Indonesia and used as a spice in cuisines all over the world...
monopoly, both involving family members of President Soeharto. The rupiah remained weak, however, and President Soeharto was forced to resign in May 1998. In August 1998, Indonesia and the IMF agreed on an Extended Fund Facility (EFF) under President B.J Habibie that included significant structural reform targets. President Abdurrahman Wahid
Abdurrahman Wahid
Abdurrahman Wahid, born Abdurrahman Addakhil , colloquially known as , was an Indonesian Muslim religious and political leader who served as the President of Indonesia from 1999 to 2001...
took office in October 1999, and Indonesia and the IMF signed another EFF in January 2000. The new program also has a range of economic, structural reform and governance targets.
The effects of the financial and economic crisis were severe. By November 1997, rapid currency depreciation had seen public debt reach US$60 bn, imposing severe strains on the government's budget. In 1998, real GDP contracted by 13.7%. The economy reached its low point in mid-1999 and real GDP growth for the year was 0.3%. Inflation reached 77% in 1998 but slowed to 2% in 1999.
The rupiah, which had been in the Rp 2,600/USD1 range at the start of August 1997 fell to 11,000/USD1 by January 1998, with spot rates around 15,000 for brief periods during the first half of 1998. It returned to 8,000/USD1 range at the end of 1998 and has generally traded in the Rp 8,000–10,000/USD1 range ever since, with fluctuations that are relatively predictable and gradual.
Post Suharto
In late 2005 Indonesia faced a 'mini-crisis' due to international oil prices rises and imports. The currency reached Rp 12,000/USD1 before stabilizing. The government was forced to cut its massive fuel subsidies, which were planned to cost $14 billion for 2005, in October. This led to a more than doubling in the price of consumer fuels, resulting in double-digit inflation. The situation had stabilized, but the economy continued to struggle with inflation at 17% in 2005.For 2006, Indonesia's economic outlook was more positive. Economic growth accelerated to 5.1% in 2004 and reached 5.6% in 2005. Real per capita income has reached fiscal year 1996/1997 levels. Growth was driven primarily by domestic consumption, which accounts for roughly three-fourths of Indonesia's gross domestic product. The Jakarta Stock Exchange
Jakarta Stock Exchange
Jakarta Stock Exchange or in Indonesian Bursa Efek Jakarta was a stock exchange based in Jakarta, Indonesia, before it merged with the Surabaya Stock Exchange to form the Indonesian Stock Exchange.-History:...
was the best performing market in Asia in 2004 up by 42%. Problems that continue to put a drag on growth include low foreign investment levels, bureaucratic red tape, and very widespread corruption which causes 51.43 trillion Rupiah or 5.6573 billion US Dollar or approximately 1.4% of GDP to be lost on a yearly basis. However, there is very strong optimism with the conclusion of peaceful elections during the year 2004 and the election of the reformist president Susilo Bambang Yudhoyono
Susilo Bambang Yudhoyono
Susilo Bambang Yudhoyono AC , is an Indonesian politician and retired Army general officer who has been President of Indonesia since 2004....
.
The unemployment rate in February 2007 was 9.75%. Despite a slowing global economy, Indonesia’s economic growth accelerated to a ten-year high of 6.3 percent in 2007. This growth rate was sufficient to reduce poverty from 17.8 to 16.6 percent based on the Government’s poverty line and reversed the recent trend towards jobless growth, with unemployment falling to 8.46 percent in February 2008. Unlike many of its more export-dependent neighbors, it has managed to skirt the recession, helped by strong domestic demand (which makes up about two-thirds of the economy) and a government fiscal stimulus package of about 1.4 percent of GDP, announced earlier this year.
After India and China, Indonesia is currently the third fastest growing economy in the Group of Twenty (G20) industrialized and developing economies. The $512 billion economy expanded 4.4 percent in the first quarter from a year earlier and last month, the IMF revised its 2009 forecast for the country to 3-4 percent from 2.5 percent. Indonesia enjoyed stronger fundamentals with the authorities implemented wide-ranging economic and financial reforms, including a rapid reduction in public and external debt, strengthening of corporate and banking sector balance sheets and reducing bank vulnerabilities through higher capitalization and better supervision.
Investment
Since the late 1980s, Indonesia has made significant changes to its regulatory framework to encourage economic growth. This growth was financed largely from private investment, both foreign and domestic. U.S. investors dominated the oil and gas sector and undertook some of Indonesia's largest miningMining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...
projects. In addition, the presence of US banks, manufacturers, and service providers expanded, especially after the industrial and financial sector reforms of the 1980s. Other major foreign investors included India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
, Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
, the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
, Qatar
Qatar
Qatar , also known as the State of Qatar or locally Dawlat Qaṭar, is a sovereign Arab state, located in the Middle East, occupying the small Qatar Peninsula on the northeasterly coast of the much larger Arabian Peninsula. Its sole land border is with Saudi Arabia to the south, with the rest of its...
, Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Taiwan
Taiwan
Taiwan , also known, especially in the past, as Formosa , is the largest island of the same-named island group of East Asia in the western Pacific Ocean and located off the southeastern coast of mainland China. The island forms over 99% of the current territory of the Republic of China following...
and South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
.
The economic crisis made continued private financing imperative but problematic. New foreign investment approvals fell by almost two-thirds between 1997 and 1999. The crisis further highlighted areas where additional reform was needed. Frequently cited areas for improving the investment climate were establishment of a functioning legal and judicial system, adherence to competitive processes, and adoption of internationally acceptable accounting and disclosure standards. Despite improvements in the laws in recent years, Indonesia's intellectual property rights regime remains weak; lack of effective enforcement is a major concern. Under Suharto, Indonesia had moved toward private provision of public infrastructure, including electric power, toll roads, and telecommunications. The financial crisis brought to light serious weaknesses in the process of dispute resolution, however, particularly in the area of private infrastructure projects. Although Indonesia continued to have the advantages of a large labor force, abundant natural resources and modern infrastructure, private investment in new projects largely ceased during the crisis.
As of 28 June 2010, the Indonesia Stock Exchange had 341 listed companies with a combined market capitalization of $269.9 billion. As at November 2010, two thirds of the market capitalization was in the form of foreign funds and only around one percent of the Indonesian population have stock investments. Efforts are further being made to improve the business and investment environment. Within the World Bank's
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
Doing Business Survey, Indonesia rose to 122 out of 178 countries in 2010, from 129 in the previous year. Despite these efforts, the rank is still below regional peers and an unfavourable investment climate persists. For example, potential foreign investors and their executive staff cannot maintain own bank accounts in Indonesia, unless they are tax-paying local residents (paying tax in Indonesia for their worldwide income).
From 1990 to 2010, Indonesian companies have been involved in 3,757 mergers and acquisitions
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
as either acquiror or target with a total known value of $137bn. In 2010, 609 transactions have been announced which is a new record. Numbers had increased by 19% compared to 2009. The value of deals in 2010 was 17 bil. USD which is the second highest number ever.
Economic relations with the United States
U.S. exports to Indonesia in 1999 totaled $2.0 billion, down significantly from $4.5 billion in 1997. The main exports were constructionConstruction
In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking...
equipment, machinery, aviation
Aviation
Aviation is the design, development, production, operation, and use of aircraft, especially heavier-than-air aircraft. Aviation is derived from avis, the Latin word for bird.-History:...
parts, chemicals, and agricultural products. U.S. imports from Indonesia in 1999 totaled $9.5 billion and consisted primarily of clothing, machinery and transportation equipment, petroleum, natural rubber, and footwear. Economic assistance to Indonesia is coordinated through the Consultative Group on Indonesia
Consultative Group on Indonesia
The Consultative Group on Indonesia that gathered Indonesia's international donors from 1992 to 2007. It was set up by the Indonesian government and the World Bank.-External links:**...
(CGI), formed in 1989. It includes 19 donor countries and 13 international organizations that meet annually to coordinate donor assistance.
USAID's current program aims to support Indonesia as it recovers from the financial crisis by providing food aid, employment generating activities, and maintaining critical public health services. USAID is also providing technical advisers to help the Indonesian Government implement economic reforms and fiscal decentralization and is supporting democratization and civil society development activities through non-governmental organizations.
Macro-economic trend
This is a chart of trend of gross domestic product of Indonesia at market prices by the IMF with figures in millions of rupiah.| Year | GDP | USD exchange (rupiah) | Inflation index (2007=100) | Nominal Per Capita GDP (as % of USA) | PPP Per Capita GDP (as % of USA) | 1980 | 60,143.191 | 626.98 | 10 | 5.25 | 5.93 | 1985 | 112,969.792 | 1,110.58 | 11 | 3.47 | 5.98 | 1990 | 233,013.290 | 1,842.80 | 16 | 3.01 | 6.63 | 1995 | 502,249.558 | 2,248.60 | 24 | 4.11 | 8.14 | 2000 | 1,389,769.700 | 8,396.33 | 53 | 2.32 | 6.92 | 2005 | 2,678,664.096 | 9,705.16 | 83 | 3.10 | 7.51 | 2010 | 6,422,918.230 | 8,555.00 | 121 | 6.38 | 9.05 |
|---|
For purchasing power parity comparisons, the US dollar is exchanged at 3,094.57 rupiah only.
Mean wages were $2.32 per manhour in 2009.
Agriculture, livestock, forestry and fishery
Statistics IndonesiaStatistics Indonesia
Statistics Indonesia, known in Indonesia as BPS , is a non-departmental government institute of Indonesia who is responsible to conduct statistical surveys. Its main customer is the government, but statistical data is also available to the public...
provisionally valued food crop yields at 213,529,700 million rupiahs in 2006 thus registering over 35% growth since 2003. Badan Pusat Statistik provisionally valued estate crop yields at 62,690,900 million rupiahs in 2006 thus registering over 34% growth since 2003. Badan Pusat Statistik provisionally valued livestock and its derivative products at 51,276,400 million rupiahs in 2006 thus registering over 37% growth since 2003.
Badan Pusat Statistik provisionally valued forestry at 30,017,000 million rupiahs in 2006 thus registering over 63% growth since 2003. Badan Pusat Statistik provisionally valued fishery at 72,979,900 million rupiahs in 2006 thus registering over 60% growth since 2003.
Hydrocarbons
Badan Pusat Statistik provisionally valued the oil and gas mining industry at 187,893,200 million rupiahs in 2006 thus registering over 97% growth since 2003.Indonesia was the only Asian member of the Organization of Petroleum Exporting Countries (OPEC) outside of the Middle East
Middle East
The Middle East is a region that encompasses Western Asia and Northern Africa. It is often used as a synonym for Near East, in opposition to Far East...
until 2008 and is currently a net oil importer. In 1999, Crude and condensate output averaged 1.5 Moilbbl per day, and in the 1998 calendar year the oil and gas sector, including refining, contributed approximately 9% to GDP. As of 2005, Indonesian crude oil and condensate output was 1.07 Moilbbl per day. This is a substantial decline from the 1990s, due primarily to aging oil fields and a lack of investment in oil production equipment. This decline in production has been accompanied by a substantial increase in domestic consumption, about 5.4% per year, leading to an estimated US$1.2 billion cost for importing oil in 2005.
The state owns all petroleum
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
and mineral
Mineral
A mineral is a naturally occurring solid chemical substance formed through biogeochemical processes, having characteristic chemical composition, highly ordered atomic structure, and specific physical properties. By comparison, a rock is an aggregate of minerals and/or mineraloids and does not...
rights. Foreign firms participate through production-sharing and work contracts. Oil and gas contractors are required to finance all exploration, production, and development costs in their contract areas; they are entitled to recover operating, exploration, and development costs out of the oil and gas produced.
Indonesia's fuel production has declined significantly over the years, owing to aging oil fields and lack of investment in new equipment. As a result, despite being an exporter of crude oil, Indonesia is now a net importer of oil products. It had previously subsidized fuel prices to keep prices low, costing US$ 7 billion in 2004 . The current president has mandated a significant reduction of government subsidy of fuel prices in several stages . The government has stated the cuts in subsidies are aimed at reducing the budget deficit to 1% of gross domestic product (GDP) this year, down from around 1.6% last year. At the same time, in order to alleviate economic hardships, the government has offered one-time subsidies to qualified citizens.
Non-oil and gas mining
Badan Pusat Statistik provisionally valued the non-oil and gas mining industry at 130,861,000 million rupiahs in 2006 thus registering over 145% growth since 2003.Indonesia is the world's largest tin market. Although mineral production traditionally centered on bauxite
Bauxite
Bauxite is an aluminium ore and is the main source of aluminium. This form of rock consists mostly of the minerals gibbsite Al3, boehmite γ-AlO, and diaspore α-AlO, in a mixture with the two iron oxides goethite and hematite, the clay mineral kaolinite, and small amounts of anatase TiO2...
, silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
, and tin
Tin
Tin is a chemical element with the symbol Sn and atomic number 50. It is a main group metal in group 14 of the periodic table. Tin shows chemical similarity to both neighboring group 14 elements, germanium and lead and has two possible oxidation states, +2 and the slightly more stable +4...
, Indonesia is expanding its copper
Copper
Copper is a chemical element with the symbol Cu and atomic number 29. It is a ductile metal with very high thermal and electrical conductivity. Pure copper is soft and malleable; an exposed surface has a reddish-orange tarnish...
, nickel
Nickel
Nickel is a chemical element with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel belongs to the transition metals and is hard and ductile...
, gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
, and coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
output for export markets.
In mid-1993, the Department of Mines and Energy reopened the coal sector to foreign investment, with the result that the leading Indonesian coal producer now is a joint venture between UK firms - BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
and Rio Tinto. Total coal production reached 74 million metric tons in 1999, including exports of 55 million tons. From January to August 2011, the coal production was 235 million tons and targeted 2011 coal production between 340 to 370 million tons. Not all of the productions can be exported due to there are Domestic Market Obligation (DMO) regulation which should fullfil the domestic market. In 2012, the DMO is 24.72 percent. And starting 2014, there are no low-grade coal exports allowed, so the upgraded brown coal
Coal upgrading technology
Coal upgrading technology refers to a class of technologies developed to remove moisture and certain pollutants from low rank coals such as sub-Bituminous coal and lignite and raise their calorific values...
process which crank up the calorie value of coal from 4,500 kcal/kg to 6,100 kcal/kg will be built in South Kalimantan
South Kalimantan
South Kalimantan/South Borneo is one of the thirty-three Provinces of Indonesia and one of four Indonesian provinces in the Indonesian part of Borneo. The provincial capital is Banjarmasin...
and South Sumatra
South Sumatra
South Sumatra is a province of Indonesia.-Geography:It is on the island of Sumatra, and borders the provinces of Lampung to the south, Bengkulu to the west, and Jambi to the north...
.
Two US firms operate three copper/gold mines in Indonesia, with a Canadian
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
and British
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
firm holding significant other investments in nickel and gold, respectively. In 1998, the value of Indonesian gold production was $1 billion and copper, $843 million. Receipts from gold, copper, and coal comprised 84% of the $3 billion. Earned in 1998 by the mineral mining sector. India fortune groups like Vedanta Resources
Vedanta Resources
Vedanta Resources plc is a global mining and metals company headquartered in London, United Kingdom. It is the largest mining and non-ferrous metals company in India and also has mining operations in Australia and Zambia. Its main products are copper, zinc, aluminium, lead and iron ore...
and Tata Group
Tata Group
Tata Group is an Indian multinational conglomerate company headquartered in Mumbai, Maharashtra, India. Tata Group is one of the largest companies in India by market capitalization and revenue. It has interests in communications and information technology, engineering, materials, services, energy,...
have significant mining operations in Indonesia.
April 2011: With additional of Tayan, West Kalimantan
West Kalimantan
West Kalimantan is a province of Indonesia. It is one of four Indonesian provinces in Kalimantan, the Indonesian part of the island of Borneo. Its capital city Pontianak is located right on the Equator....
Alumina project which produce 5 percent of the world's alumina production, Indonesia will be the world's second largest Alumina producer. The project will not make the ores to become Aluminium
Aluminium
Aluminium or aluminum is a silvery white member of the boron group of chemical elements. It has the symbol Al, and its atomic number is 13. It is not soluble in water under normal circumstances....
due to there are 100 types of Alumina derivatives which can be developed further by other companies in Indonesia.
Quarrying
Badan Pusat Statistik provisionally valued the quarrying industry at 35,872,700 million rupiahs in 2006 thus registering over 87% growth since 2003.Oil and gas manufacturing
Badan Pusat Statistik provisionally valued the petroleum refinery industry at 119,833,900 million rupiahs in 2006 thus registering over 139% growth since 2003 while the liquefied natural gas industry was valued at 53,791,300 million rupiahs in 2006 thus registering over 94% growth since 2003.Non-oil and gas manufacturing
Badan Pusat Statistik provisionally valued the food, beverage and tobacco industry at 213,173,300 million rupiahs in 2006 thus registering over 38% growth since 2003.Textile, leather products and footwear industry was valued at 90,871,700 million rupiahs in 2006 thus registering over 34% growth since 2003.
Wood and wood products industry was valued at 44,410,400 million rupiahs in 2006 thus registering over 48% growth since 2003.
Paper and printing products industry was valued at 39,968,900 million rupiahs in 2006 thus registering over 43% growth since 2003.
Fertilizers, chemicals and rubber products industry was valued at 95,765,000 million rupiahs in 2006 thus registering over 68% growth since 2003.
Cement and non-metallic quarry products industry was valued at 29,015,100 million rupiahs in 2006 thus registering over 50% growth since 2003.
Iron, steel and other basic metals industry was valued at 20,492,200 million rupiahs in 2006 thus registering over 52% growth since 2003.
Transport equipment, machinery and apparatus industry was valued at 221,891,800 million rupiahs in 2006 thus registering over 87% growth since 2003.
Other manufacturing industries were valued at 7,148,300 million rupiahs in 2006 thus registering over 67% growth since 2003.
April 2011, after more than 40 years Toyota has developed into a strong production base for the domestic and export markets. In the next two years the car market is expected to reach one million unit a year which Toyota and also its subsidiary company Daihatsu get a market share about 40 percent.
In 2010, Indonesia sales 7.6 million motorcycles, which mainly produce in Indonesia with almost 100 percent local components. Honda led the market with a 50.95 percent market share, followed by Yamaha with 41.37 percent market share.
Electricity
Badan Pusat Statistik provisionally valued the electricity industry at 21,247,200 million rupiahs in 2006 thus registering over 51% growth since 2003. The vast majority of production is with conventional fossil units, but hydroelectric and other renewables make a contribution. Total electric production in 2005 was 100 TWh.Indonesia has expressed interest recently in possible use of nuclear plants
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...
.
City gas
Badan Pusat Statistik provisionally valued the city gas industry at 5,036,100 million rupiahs in 2006 thus registering over 119% growth since 2003.Water supply
Badan Pusat Statistik provisionally valued the water supply industry at 4,115,200 million rupiahs in 2006 thus registering over 43% growth since 2003.Construction
Badan Pusat Statistik provisionally valued the construction industry at 249,127,800 million rupiahs in 2006 thus registering over 98% growth since 2003.Wholesale and retail trade
Badan Pusat Statistik provisionally valued the wholesale and retail trades at 386,872,500 million rupiahs in 2006 thus registering over 48% growth since 2003.Hotels
Badan Pusat Statistik provisionally valued the hotel industry at 17,248,800 million rupiahs in 2006 thus registering over 52% growth since 2003.Restaurants
Badan Pusat Statistik provisionally valued the restaurant industry at 92,214,900 million rupiahs in 2006 thus registering over 45% growth since 2003.Transportation
Badan Pusat Statistik provisionally valued railway transport at 1,345,000 million rupiahs in 2006 thus registering over 16% growth since 2003.Road transport was valued at 81,449,500 million rupiahs in 2006 thus registering over 106% growth since 2003.
Sea transport was valued at 16,120,700 million rupiahs in 2006 thus registering over 34% growth since 2003.
River, lake and ferry transport was valued at 4,510,700 million rupiahs in 2006 thus registering over 53% growth since 2003.
Air transport was valued at 14,685,200 million rupiahs in 2006 thus registering over 96% growth since 2003.
Other services allied to transport industry were valued at 24,868,900 million rupiahs in 2006 thus registering over 49% growth since 2003.
Communication
Badan Pusat Statistik provisionally valued the communication industry at 87,941,600 million rupiahs in 2006 thus registering over 123% growth since 2003.Debt Sevice Ratio
At end of June 2011, Indonesia's debt service ratio was 21.6 percent, well below the dangerous threshold of 30 percent.Banking
Badan Pusat Statistik provisionally valued the banking industry at 97,708,300 million rupiahs in 2006 thus registering over 31% growth since 2003.Non-bank finance institutions
Badan Pusat Statistik provisionally valued the non-bank finance industry at 26,682,500 million rupiahs in 2006 thus registering over 87% growth since 2003.Services allied to finance
Badan Pusat Statistik provisionally valued other services allied to finance industry at 2,006,300 million rupiahs in 2006thus registering over 82% growth since 2003.Real estate
Badan Pusat Statistik provisionally valued the real estate industry at 97,764,400 million rupiahs in 2006 thus registering over 72% growth since 2003.Business services
Badan Pusat Statistik provisionally valued other business support services at 47,381,600 million rupiahs in 2006 thus registering over 71% growth since 2003.Small businesses
There are 50 million small businesses in Indonesia with online usage growth of 48 percent in 2010, so Google will open a local office in Indonesia before 2012.General government
Badan Pusat Statistik provisionally valued government administration and defence services at 103,508,800 million rupiahs in 2006 thus registering over 63% growth since 2003.Other government services were valued at 64,290,900 million rupiahs in 2006 thus registering over 67% growth since 2003.
Private
Badan Pusat Statistik provisionally valued the social and community services at 60,319,400 million rupiahs in 2006 thus registering over 92% growth since 2003.Amusement and recreational services were valued at 10,018,800 million rupiahs in 2006 thus registering over 46% growth since 2003.
Personal and household services were valued at 100,247,900 million rupiahs in 2006 thus registering over 69% growth since 2003.
Indonesian migrant workers
The most common destination of Indonesian migrant workers is Malaysia (including the illegal workers). In 2010, according to World BankWorld Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
report, Indonesia is among the world's top ten remittance receiving countries with value of totalling $7 billion.
May 2011: There are 6 million Indonesian citizens working overseas, 2.2 million of whom reside in Malaysia and another 1.5 million in Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
.
Public expenditure
Since the Asian financial crisis in the late 1990s, which brought down the Suharto regime in its wake in May 1998, Indonesia’s public finances have undergone a major transformation. The financial crisis itself caused a huge economic contraction and a commensurate decline in public spending. Not surprisingly, debt and subsidies increased dramatically, while development spending was sharply curtailed.Now, one decade later, Indonesia has moved out of crisis and into a situation in which the country once again has sufficient financial resources to address its development needs. This change has come about as a result of prudent macroeconomic policies, the most important of which has been very low budget deficits. Also, the way in which the government spends money has been transformed by the 2001 ‘big bang’ decentralization, which has resulted in over one-third of all government spending being transferred to sub-national governments by 2006. Equally important, in 2005, spiraling international oil prices caused Indonesia’s domestic fuel subsidies to run out of control, threatening the country’s hard won macroeconomic stability. Despite the political risks of major price hikes in fuel driving more general inflation, the government took the brave decision to slash fuel subsidies.
This decision freed up an extra US$10 billion for government spending on development programs. Meanwhile, by 2006 an additional US$5 billion had become available thanks to a combination of increased revenues boosted by steady growth of the overall economy, and declining debt service payments, a hangover from the economic crisis. This meant that in 2006 the government had an extra US$15 billion to spend on development programs. The country has not seen “fiscal space” of such magnitude since the revenue windfall experienced during the oil boom of the mid-1970s. However, an important difference is that the 1970s oil revenue windfall was just that: a lucky and unforeseen financial boon. In contrast, the current fiscal space has been achieved as a direct result of sound and carefully thought through government policy decisions.
However, while Indonesia has made tremendous progress in freeing up financial resources for its development needs, and this situation is set to continue in the newt few years, subsidies continue to place a heavy burden on the government’s budget. The 2005 reductions on subsidies notwithstanding, total subsidies still accounted for some US$10 billion in government spending in 2006, or a significant 15 percent of the total budget.
Thanks to the decision of the Habibie government (May 1998 to August 2001) to decentralize power across the country in 2001, increasingly high shares of government spending are being channeled through sub-national governments. As a result, provincial and district governments in Indonesia now spend 37 percent of total public funds, which represents a level of fiscal decentralization that is even higher than the OECD average.
Given the level of decentralization that has occurred in Indonesia and the fiscal space now available, the Indonesian government has a unique opportunity to revamp the country’s neglected public services. If carefully managed, this could allow the lagging regions of eastern Indonesian to catch up with other more affluent areas of the country in terms of social indicators. It could also enable Indonesian to focus on the next generation of reforms, namely improving quality of public services and targeted infrastructure provision. In effect, the correct allocation of public funds and the careful management of those funds once they have been allocated have become the main issues for public spending in Indonesia going forward.
For example, while education spending has now reached 17.2 percent of total public spending ─ the highest share of any sector and a share of 3.9 percent of GDP in 2006, compared with only 2.0 percent of GDP in 2001 ─ in contrast total public health spending remains below 1.0 percent of GDP. Meanwhile, public infrastructure investment has still not fully recovered from its post-crisis lows and remains at only 3.4 percent of GDP. One other area of concern is that the current level of expenditure on administration is excessively high. Standing at 15 percent in 2006, this suggests a significant waste of public resources.
Economic challenges
Between 1945 and 1960s, Indonesia had been an excessively poor country. It was only until changes in government in 1965 that triggered off essential progress in lowering the country’s poverty rate. From a steep recession in 1965 with an 8% decline in GDP, the country began to develop economically in the 1970s, earning much benefit from the oil shock1973 oil crisis
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC proclaimed an oil embargo. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war. It lasted until March 1974. With the...
. This development continued throughout the 1980s and into the 1990s despite the oil counter-shocks. During these periods, GDP level rose at an average rate of 7.1%. Indonesia saw consistent growth, with the official poverty rate falling from 60% to 15%. Despite this development, an estimated 13.33% of the population (2010 estimate) remains below the poverty line.
Inequality
Poverty rate has since been higher in the outer islands. Java, Bali, and Sumatra have benefited more due to the rise of manufacturing and better infrastructure of the inner islands. Economic disparity and the flow of natural resource profits to Jakarta has led to discontent and even contributed to separatist movements in areas such as Aceh and Irian Jaya. Geographically, the poorest fifth regions account for just 8% of consumption, while the richest fifth account for 45%. While there are new laws on decentralization that may address the problem of uneven growth and satisfaction partially, there are many hindrances in putting this new policy into practice.At the Indonesian Chamber of Commerce and Industry (Kadin) meeting at Makassar
Makassar
Makassar, is the provincial capital of South Sulawesi, Indonesia, and the largest city on Sulawesi Island. From 1971 to 1999, the city was named Ujung Pandang, after a precolonial fort in the city, and the two names are often used interchangeably...
on April 2011, Disadvantaged Regions Minister said there are 184 regencies classified as disadvantaged areas in Indonesia with around 120 regencies were located in the eastern part of Indonesia.
Inflation
Inflation has long been another problem in Indonesia. Because of political turmoil, the country had once suffered hyperinflation, with 1000% annual inflation between 1964 and 1967, and this had been enough to create severe poverty and hunger. Even though the economy recovered very quickly during the first decade of New OrderNew Order (Indonesia)
The New Order is the term coined by former Indonesian President Suharto to characterize his regime as he came to power in 1966. Suharto used this term to contrast his rule with that of his predecessor, Sukarno...
administration (1970–1981), never once was the inflation less than 10% annually. The inflation slowed during mid-1980s, however, the economy was also languid due to the decrease of oil price that reduced its export revenue dramatically. The economy was again experiencing rapid growth between 1989-1997 due to the improving export-oriented manufacturing sector, still the inflation rate was higher than economic growth, and this caused widening gap among several Indonesians. The inflation peaked in 1998 during the Asian financial crisis, with over 58%, causing the raise in poverty level as bad as the 1960s crisis. During the economic recovery and growth in recent years, the government has been trying to decline the inflation rate. However, it seems that Indonesian inflation has been affected by the global fluctuation and domestic market competition. As of 2010, the inflation rate was approximately 7%, when its economic growth was 6% (Note that economic growth rates already take inflation into account, so this comparison by no means implies economic reduction). To date, inflation is affecting Indonesian lower middle class, especially those who can't afford food after price hikes.
Best performance
Based on the regional administration implementation performance evaluation of 2009, by an order the best performance were:- 3 Provinces: North SulawesiNorth SulawesiNorth Sulawesi is a province of Indonesia. It is on the island of Sulawesi, and borders the province of Gorontalo to the west . The islands of Sangihe and Talaud form the northern part of the province, which border Davao del Sur in the Philippines.The capital and largest city in North Sulawesi is...
, South SulawesiSouth SulawesiSouth Sulawesi is a province of Indonesia, located on the western southern peninsula of Sulawesi Island. The province is bordered by Central Sulawesi province to the north, South East Sulawesi province to the east and West Sulawesi province to the west...
and Central JavaCentral JavaCentral Java is a province of Indonesia. The administrative capital is Semarang. It is one of six provinces on the island of Java.This province is the province of high Human Development in Indonesia and its Points Development Index countries is equivalent to Lebanon. The province of Central Java... - 10 Districts: JombangJombang RegencyJombang is a regency of East Java, Indonesia. Its capital is Jombang. The regency has an area of 1,159.5 km² and population of 1,163,420...
and BojonegoroBojonegoroBojonegoro is a regency in East Java, Indonesia, about 110 km west of Surabaya. Bojonegoro is located in the inland part of northern Java plain, on the banks of the Bengawan Solo river, the largest river in Java....
in East JavaEast JavaEast Java is a province of Indonesia. It is located on the eastern part of the island of Java and includes neighboring Madura and islands to its east and to its north East Java is a province of Indonesia. It is located on the eastern part of the island of Java and includes neighboring Madura and...
Province, Sragen and PacitanPacitanPacitan is a regency located in the southwestern East Java Province, with Central Java Province on its west border. Located between 7.55° - 8.17°S and 110.55° - 111.25°E. The borders of Pacitan Regency are: Wonogiri Regency in the west, Ponorogo Regency and Wonogiri Regency in the north,...
in Central Java, BoalemoBoalemoBoalemo is a regency of Gorontalo Province, Indonesia. Its regency seat is Tilamuta....
in GorontaloGorontalo (province)Gorontalo is a province of Indonesia on the northern part of Sulawesi. The province was established in December 2000 after being split from North Sulawesi province...
, Enrekang in South Sulawesi, BulelengBulelengBuleleng is a regency of Bali, Indonesia. It has an area of 1,365.88 km2 and population of 577,644 . Its regency seat is Singaraja....
in BaliBaliBali is an Indonesian island located in the westernmost end of the Lesser Sunda Islands, lying between Java to the west and Lombok to the east...
, Luwu Utara in South Sulawesi, Karanganyar in Central Java and Kulon Progo in Yogyakarta - 10 Cities: SurakartaSurakartaSurakarta, also called Solo or Sala, is a city in Central Java, Indonesia of more than 520,061 people with a population density of 11,811.5 people/km2. The 44 km2 city adjoins Karanganyar Regency and Boyolali Regency to the north, Karanganyar Regency and Sukoharjo Regency to the east and...
and SemarangSemarang- Economy :The western part of the city is home to many industrial parks and factories. The port of Semarang is located on the north coast and it is the main shipping port for the province of Central Java. Many small manufacturers are located in Semarang, producing goods such as textiles,...
in Central Java, Banjar in West JavaWest JavaWest Java , with a population of over 43 million, is the most populous and most densely populated province of Indonesia. Located on the island of Java, it is slightly smaller in area than densely populated Taiwan, but with nearly double the population...
, Yogyakarta city in Yogyakarta, CimahiCimahiCimahi is a city located west of Bandung, West Java, Indonesia in the Bandung Metropolitan Area. The city is a major textile producer exporter, and is host to several military education facilities....
in West Java, SawahluntoSawahluntoKota Sawahlunto or Sawah Lunto is a town in West Sumatra, Indonesia. This town covers 5.86 km² and has a population of 15,279.Sawahlunto is one of the mining towns in West Sumatra. It was first established as a town in 1982 by the Dutch along with the coal mining operations during that time....
in West SumatraWest SumatraWest Sumatra is a province of Indonesia. It lies on the west coast of the island Sumatra. It borders the provinces of North Sumatra to the north, Riau and Jambi to the east, and Bengkulu to the southeast. It includes the Mentawai Islands off the coast...
, ProbolinggoProbolinggoProbolinggo is a city on the north coast of East Java, Indonesia.Like most of northern East Java, the city has a large Madurese population in addition to many ethnically Javanese people...
and MojokertoMojokertoMojokerto is one of the districts in East Java Province, Indonesia. It is located 40 km southwest of Surabaya, and constitutes one of the regional units of Gerbangkertosusila Development .-Geographic...
in East java, SukabumiSukabumiSukabumi is a city surrounded by the regency of the same name in the highlands of West Java, Indonesia, about south of the national capital, Jakarta....
and BogorBogorBogor is a city on the island of Java in the West Java province of Indonesia. The city is located in the center of the Bogor Regency , 60 kilometers south of the Indonesian capital Jakarta...
in West Java
Based on JBIC Fiscal Year 2010 survey (22nd Annual Survey Report) found that in 2009, Indonesia has the highest satisfaction level in net sales and profits for the Japanese companies.
High Net Worth Individuals
-According to Asia Wealth ReportJulius Baer Group
Julius Bär Group is a Swiss banking firm which is the parent company of Bank Julius Bär, a traditional private bank based in Zurich, Switzerland. The firm dates itself back to the year 1890, when an exchange office was founded by Ludwig Hirschhorn und Theodor Grob. Joseph Michael Uhl and Julius...
, Indonesia has the highest growth rate of High Net Worth Individuals
High net worth individual
A high-net-worth individual is a person with a high net worth. In the private banking business, these individuals typically are defined as having investable assets in excess of US$1 million. As explained below, the U.S...
(HNWI) predicted among the 10 most Asian economies. By 2015, Indonesia will have up to 99,000 wealthy individuals with total wealth $478 billion. HNWI means individuals with $1 million or more in investable assets excluding their primary residence.
Other data
Agriculture - products:rice, cassava (tapioca), peanuts, rubber, cocoa, coffee, palm oil, copra; poultry, beef, pork, eggs
Exchange rates:
Indonesian rupiah (IDR) per US dollar - 9,698.9 (2008), 9,143 (2007), 9,159.3 (2006), 9,704.7 (2005), 8,938.9 (2004)
See also
- CIVETSCIVETSThe CIVETS is an acronym for favored emerging markets coined in late 2009 by Robert Ward, Global Forecasting Director for the Economist Intelligence Unit . The term has also been used by HSBC's chief executive Michael Geoghegan...
countries - G20 developing nationsG20 developing nationsThe G20 is a bloc of developing nations established on 20 August 2003. Distinct and separate from the G-20 major economies, the group emerged at the 5th Ministerial WTO conference, held in Cancún, Mexico, from 10 September to 14 September 2003...
- Next ElevenNext ElevenThe Next Eleven are eleven countries—Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, South Korea, Turkey, and Vietnam — identified by Goldman Sachs investment bank and Jim O'Neill as having a high potential of becoming, along with the BRICS, the world's largest...
- Taxation in IndonesiaTaxation in Indonesia-Definitions:Indonesian taxation is based on Article 23A of UUD 1945 , where tax is an enforceable contribution exposed on all Indonesian citizens, foreign nationals and residents who have resided for 120 cumulative days within a twelve month period.Indonesia has a stratification of taxation...