The economy of Indonesia is the largest in
Southeast Asia
Southeast Asia, also spelled South East Asia and South-East Asia, and also known as Southeastern Asia, South-eastern Asia or SEA, is the geographical south-eastern region of Asia, consisting of the regions that are situated south of mainlan ...
and is one of the
emerging market
An emerging market (or an emerging country or an emerging economy) is a market that has some characteristics of a developed market, but does not fully meet its standards. This includes markets that may become developed markets in the future or wer ...
economies. As a middle-income country and member of the
G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigatio ...
,
Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...
is classified as a
newly industrialized country
The category of newly industrialized country (NIC), newly industrialized economy (NIE) or middle income country is a socioeconomic classification applied to several countries around the world by political scientists and economists. They represe ...
. It is the
17th largest economy in the world by nominal GDP and the
7th largest in terms of GDP (PPP). Estimated at US$40 billion in 2019, Indonesia's Internet economy is expected to cross the US$130 billion mark by 2025. Indonesia depends on the domestic market and government budget spending and its ownership of
state-owned enterprises (the central government
owns 141 enterprises). The administration of prices of a range of basic goods (including rice and electricity) also plays a significant role in Indonesia's
market economy. However, since the 1990s, the majority of the economy has been controlled by individual Indonesians and foreign companies.
In the aftermath of the
1997 Asian financial crisis, the government took custody of a significant portion of private sector assets through the acquisition of
nonperforming bank loans and corporate assets through the
debt restructuring process, and the companies in custody were sold for privatization several years later. Since 1999, the economy has recovered. Growth has accelerated to over 4–6% in recent years.
In 2012, Indonesia replaced India as the second-fastest-growing G-20 economy, behind China. Since then, the annual growth rate has fluctuated around 5%. However, Indonesia faced a recession in 2020, when the economic growth collapsed to −2.07% due to the
COVID-19 pandemic
The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identi ...
. This was the worst growth since the 1997 crisis.
In 2021, gross domestic product expanded by 3.69%, due to the removal of COVID-19 restrictions as well as record-high exports driven by stronger commodity prices.
Indonesia is predicted to be the 4th largest economy in the world by 2045.
Joko Widodo has stated that his cabinet's calculations showed that by 2045, Indonesia will have a population of 309 million people. By Widodo's estimate, there would be economic growth of 5−6% and GDP of US$9.1 trillion. Indonesia's income per capita is expected to reach US$29,000.
History
Sukarno era
In the years immediately following the
proclamation of Indonesian independence, both the
Japanese occupation and the
conflict between Dutch and Republican forces had crippled the country's production, with exports of commodities such as rubber and oil being reduced to 12 and 5% of their pre-WW2 levels, respectively.
The first Republican government-controlled bank, the Indonesian State Bank (''
Bank Negara Indonesia'', BNI) was founded on 5 July 1946. It initially acted as the manufacturer and distributor of ORI (''Oeang Republik Indonesia''/Money of the Republic of Indonesia), a currency issued by the Republican Government which was the predecessor of
Rupiah
The rupiah (symbol: Rp; currency code: IDR) is the official currency of Indonesia. It is issued and controlled by Bank Indonesia. The name " rupiah" is derived from the Sanskrit word for silver, (). Sometimes, Indonesians also informally use ...
. Despite this, currency issued during the Japanese occupation and by Dutch authorities was still in circulation, and the simplicity of the ORI made its counterfeiting relatively easy, worsening matters. Between 1949 and 1960, Indonesia experienced several economic disruptions. The country's independence
recognized by the Netherlands, the dissolution of the
United States of Indonesia
The United States of Indonesia ( nl, Verenigde Staten van Indonesië, id, Republik Indonesia Serikat, abbreviated as RIS), was a short-lived federal state to which the Netherlands formally transferred sovereignty of the Dutch East Indies (exce ...
in 1950, the subsequent
liberal democracy period, the nationalization of ''De Javasche Bank'' into the modern
Bank Indonesia
Bank Indonesia (BI) is the central bank of the Republic of Indonesia. It replaced in 1953 the Bank of Java ( nl, De Javasche Bank, DJB), which had been created in 1828 to serve the financial needs of the Dutch East Indies.
History
Bank of Ja ...
, and the takeover of Dutch corporate assets following the
West New Guinea dispute
The West New Guinea dispute (1950–1962), also known as the West Irian dispute, was a diplomatic and political conflict between the Netherlands and Indonesia over the territory of Dutch New Guinea. While the Netherlands had ceded sovereignty ov ...
,
which all resulted in the devaluation of Dutch banknotes into half their value.
During the
guided democracy era in the 1960s, the economy deteriorated drastically as a result of political instability. The government was inexperienced in implementing macroeconomic policies, which resulted in severe poverty and hunger. By the time of Sukarno'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. Nevertheless, Indonesia's post-1960 economic improvement was considered remarkable when taking into consideration how few indigenous Indonesians in the 1950s had received a formal education under Dutch colonial policies.
New Order
Following President Sukarno's downfall, the New Order administration brought
a degree of discipline to economic policy that quickly brought inflation down, stabilized the currency, rescheduled foreign debt, and attracted foreign aid and investment. (See
Inter-Governmental Group on Indonesia
The Inter-Governmental Group on Indonesia (IGGI) was established in 1967 as an international consortium of official donors to coordinate the provision of foreign assistance to Indonesia. IGGI was the lead official grouping of donors to Indonesia fr ...
and
Berkeley Mafia
The Berkeley Mafia was the term given to a group of American-educated economists in Indonesia who were given technocratic positions under the Suharto dictatorship during the late 1960s. They were appointed in the early stages of the New Order adm ...
). Indonesia was until recently Southeast Asia's only member of OPEC, and the 1970s
oil price
The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Ref ...
rise provided an export revenue windfall that contributed to sustained high economic growth rates, averaging over 7% from 1968 to 1981.
[Schwarz (1994), pp. 52–7.]
With high levels of regulation and dependence on declining oil prices, growth slowed to an average of 4.5% per annum between 1981 and 1988. A range of economic reforms was introduced in the late 1980s, including a managed devaluation of the rupiah to improve export competitiveness, and deregulation 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 masked several structural weaknesses in the economy. It came at a high cost in terms of weak and corrupt governmental institutions, severe public indebtedness through mismanagement of the financial sector, rapid depletion of natural resources, and 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 e.V. (TI) is a German registered association founded in 1993 by former employees of the World Bank. Based in Berlin, its nonprofit and non-governmental purpose is to take action to combat global corruption with civil ...
. As a result, the legal system was 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 restrictions all created economic distortions.
The
1997 Asian financial crisis that began to affect Indonesia became an economic and political crisis. The initial response was to float the rupiah, raise key domestic interest rates, and tighten fiscal policy. In October 1997, Indonesia and the
International Monetary Fund
The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) reached an agreement on an economic reform program aimed at macroeconomic stabilization and the 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 Suharto. The rupiah remained weak, however, and Suharto was forced to resign in May 1998 after
massive riots erupted. In August 1998, Indonesia and the IMF agreed on an Extended Fund Facility (EFF) under President
B. J. Habibie
Bacharuddin Jusuf Habibie (; 25 June 1936 – 11 September 2019) was an Indonesian engineer and politician who was the third president of Indonesia from 1998 to 1999. Less than three months after his inauguration as the seventh vice preside ...
that included significant structural reform targets. President
Abdurrahman Wahid
Abdurrahman Wahid ( ; born Abdurrahman ad-Dakhil; 7 September 1940 – 30 December 2009), though more colloquially known as Gus Dur (), was an Indonesian politician and Islamic religious leader who served as the 4th president of Indonesia, fr ...
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 crisis were severe. By November 1997, rapid currency depreciation had seen public debt reach US$60 billion, imposing severe strains on the government's budget. In 1998, real GDP contracted by 13.1%, and the economy reached its low point in mid-1999 with 0.8% real GDP growth. Inflation reached 72% 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 the 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. However, the rupiah began devaluing past 11,000 in 2013, and as of November 2016 is around 13,000 Rp/USD1.
Reform era
![Indonesian Rupiah (IDR) banknotes](https://upload.wikimedia.org/wikipedia/commons/3/30/Indonesian_Rupiah_%28IDR%29_banknotes.png)
Since an inflation target was introduced in 2000, the GDP deflator and the
CPI
A consumer price index (CPI) is a price index, the price of a weighted average market basket of consumer goods and services purchased by households. Changes in measured CPI track changes in prices over time.
Overview
A CPI is a statistic ...
have grown at an average annual pace of 10¾% and 9%, respectively, similar to the pace recorded in the two decades prior to the 1997 crisis, but well below the pace in the 1960s and 1970s. Inflation has also generally trended lower through the 2000s, with some of the fluctuations in inflation reflecting government policy initiatives such as the changes in fiscal subsidies in 2005 and 2008, which caused large temporary spikes in CPI growth.
In late 2004, Indonesia faced a 'mini-crisis' due to
international oil prices rises and imports. The currency exchange rate reached Rp 12,000/USD1 before stabilizing. Under President
Susilo Bambang Yudhoyono (SBY), the government was forced to cut its massive fuel subsidies, which were planned to cost $14 billion in October 2005. 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 late 2005. Economic outlook became more positive as the 2000s progressed. Growth accelerated to 5.1% in 2004 and reached 5.6% in 2005. Real per capita income has reached fiscal levels in 1996–1997. Growth was driven primarily by domestic consumption, which accounts for roughly three-fourths of Indonesia's gross domestic product (GDP). The
Jakarta Stock Exchange
Jakarta Stock Exchange (JSX) ( Indonesian: Bursa Efek Jakarta (BEJ)) was a stock exchange based in Jakarta, Indonesia, before it merged with the Surabaya Stock Exchange to form the Indonesia Stock Exchange.
History
Originally opened in 1912 und ...
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 widespread corruption which costs RP. 51.4 trillion (US$5.6 billion) or approximately 1.4% of GDP annually. However, there is a robust economic optimism due to the conclusion of the peaceful 2004 elections.
As of February 2007, the unemployment rate was 9.75%. Despite a slowing global economy, Indonesia's economic growth accelerated to a ten-year high of 6.3% in 2007. This growth rate was sufficient to reduce poverty from 17.8% to 16.6% based on the government's poverty line and reversed the recent trend towards
jobless growth
A jobless recovery or jobless growth is an economic phenomenon in which a macroeconomy experiences economic growth, growth while maintaining or decreasing its level of employment. The term was coined by the economist Nick Perna in the early 1990s ...
, with unemployment falling to 8.46% in February 2008. Unlike many of its more export-dependent neighbors, Indonesia 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% of GDP. After India and China, Indonesia was the third-fastest growing economy in the G20. With the $512 billion economy expanded 4.4% in the first quarter from a year earlier and last month, the IMF revised its 2009 Indonesia forecast to 3–4% from 2.5%. 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.
In 2012, Indonesia's real GDP growth reached 6%, then it steadily decreased below 5% until 2015. After Joko Widodo succeeded SBY, the government took measures to ease regulations for foreign direct investments to stimulate the economy. Indonesia managed to increase their GDP growth slightly above 5% in 2016–2017. However, the government is currently still facing problems such as currency weakening, decreasing exports and stagnating consumer spending. The current unemployment rate for 2019 is at 5.3%.
Reform happened in Indonesia around the 1980s, when the Indonesian government states it will be attempting to economically integrate with global economies. They stated in 2017 that "Globalisation has made it difficult for the Indonesian economy to balance all other factors of the economy".
Data
The following table shows the main economic indicators in 1980–2021 (with IMF staff estimates in 2022–2027). Inflation under 5% is in green.
Structure
Indonesia faced a recession in 2020 when the economic growth collapsed to -2.07% due to the
COVID-19 pandemic
The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identi ...
, the worst growth since 1997 crisis. Transportation and accommodation were significantly affected by the COVID-19 outbreak, since many hotels were forced to close and not operate to reduce the spread of the virus.
Composition
Sub-sector
Source: Indonesian Central Agency on Statistics (Badan Pusat Statistik).
Sectors
Agriculture
![Oil palm plantation in Cigudeg-03](https://upload.wikimedia.org/wikipedia/commons/7/7b/Oil_palm_plantation_in_Cigudeg-03.jpg)
Agriculture is a key sector which contributed to 14.43% of GDP. Currently, there are around 30% of the land area used for agriculture and employed about 49 million people (41% of the total workforce).
Primary agriculture commodities include rice,
cassava
''Manihot esculenta'', commonly called cassava (), manioc, or yuca (among numerous regional names), is a woody shrub of the spurge family, Euphorbiaceae, native to South America. Although a perennial plant, cassava is extensively cultivated ...
(
tapioca
Tapioca (; ) is a starch extracted from the storage roots of the cassava plant (''Manihot esculenta,'' also known as manioc), a species native to the North and Northeast regions of Brazil, but whose use is now spread throughout South America ...
), peanuts,
natural rubber
Rubber, also called India rubber, latex, Amazonian rubber, ''caucho'', or ''caoutchouc'', as initially produced, consists of polymers of the organic compound isoprene, with minor impurities of other organic compounds. Thailand, Malaysia, and ...
, cocoa, coffee,
palm oil,
copra
Copra (from ) is the dried, white flesh of the coconut from which coconut oil is extracted. Traditionally, the coconuts are sun-dried, especially for export, before the oil, also known as copra oil, is pressed out. The oil extracted from co ...
; poultry, beef, pork, and eggs.
Palm oil production is vital to the economy as Indonesia is the world's biggest producer and consumer of the commodity, providing about half of the world's supply.
Plantations in the country stretch across 6 million hectares as of 2007, with a replanting plan set for an additional 4.7 million to boost productivity in 2017. There are a number of negative
social and environmental impacts of palm oil production in Southeast Asia.
Seafood
In 2015, the total production of seafood reached about 22.31 million metric tons, valued at around 18.10 billion US dollars. For capture of wild fish (both inland and marine), the production trend was steady in 2011–2015, while there was a steep increase in the production from
aquaculture during the same period.
Oil and mining
![Grasberg mine](https://upload.wikimedia.org/wikipedia/commons/0/05/Grasberg_mine.jpg)
Indonesia was the only South East Asian member of the
Organization of Petroleum Exporting Countries
The Organization of the Petroleum Exporting Countries (OPEC, ) is a cartel of countries. Founded on 14 September 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), it has, since 1965, been headquart ...
(OPEC) until its suspension in 2009. The country currently remains a net oil importer despite its large petroleum production industry. In 1999, crude and condensate output averaged per day, and in 1998, the oil and gas sector including refining, contributed approximately 9% to GDP. As of 2005, crude oil and condensate output were per day. It indicates a substantial decline from the 1990s, due primarily to ageing 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 and are entitled to recover operating, exploration, and development costs out of the oil and gas produced. Indonesia had previously subsidized fuel prices to keep prices low, costing US$7 billion in 2004. SBY has mandated a significant reduction of government subsidy of fuel prices in several stages. The government has stated that cuts in subsidies are aimed at reducing the budget deficit to 1% of GDP in 2005, down from around 1.6% last year. At the same time, the government has offered one-time subsidies for qualified citizens, to alleviate hardships.
Indonesia is the world's largest tin market. Although mineral production traditionally centered on bauxite, silver, and tin, it is expanding its copper, nickel, gold, and coal output for export markets. In mid-1993, the
Department of Mines and Energy
The Department of Energy and Water Supply (DEWS) was a department of the Queensland Government which is responsible for the state's energy and water industries. The department's head office was at 1 William Street, Brisbane.
History
The Depart ...
reopened the coal sector to foreign investment, resulting in a joint venture between Indonesian coal producer and
BP and
Rio Tinto Group. Total coal production reached 74 million metric tons in 1999, including exports of 55 million tons, and in 2011, production was 353 million. As of 2014, Indonesia is the third-largest producer with a total output of 458 Mt and export of 382 Mt. At this rate, the reserves will be used up in 61 years until 2075. Not all of the productions can be exported due to Domestic Market Obligation (DMO) regulation, which should fulfill the domestic market. In 2012, the DMO was 24.72%. Starting from 2014, no low-grade coal exports are allowed, so the
upgraded brown coal process that cranks up the calorie value of coal from 4,500 to 6,100 kcal/kg will be built in
South Kalimantan and
South Sumatra
South Sumatra ( id, Sumatra Selatan) is a province of Indonesia. It is located on the southeast of the island of Sumatra, The province spans and had a population of 8,467,432 at the 2020 Census. The capital of the province is Palembang. The prov ...
. Indonesia is also the
world's largest producer of nickel.
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. India's fortune groups like
Vedanta Resources
Vedanta Resources Limited is an Indian diversified mining company headquartered in London, United Kingdom. It is the largest mining and non-ferrous metals company in India and has mining operations in Australia and Zambia and oil and gas oper ...
and
Tata Group
The Tata Group () is an Indian multinational conglomerate headquartered in Mumbai. Established in 1868, it is India's largest conglomerate, with products and services in over 150 countries, and operations in 100 countries across six continents ...
also have substantial mining operations in Indonesia. In 1998, the value of Indonesian gold and copper production was $1 billion and $843 million respectively. Receipts from gold, copper, and coal accounted for 84% of the $3 billion earned in 1998 by the mineral mining sector. With the addition of
Alumina project that produces 5% of the world's alumina production, Indonesia would be the world's second-largest Alumina producer. The project will not make the ores to become aluminum, as there are 100 types of Alumina derivatives that can be developed further by other companies in Indonesia.
Joko Widodo's administration continued the
resource nationalism policy of SBY, nationalizing some assets controlled by multinational companies such as
Freeport McMoRan
Freeport-McMoRan Inc., often called Freeport, is an American mining company based in the Freeport-McMoRan Center, in Phoenix, Arizona. The company is the world's largest producer of molybdenum, is a major copper producer and operates the world's ...
,
TotalEnergies
TotalEnergies SE is a French multinational integrated energy and petroleum company founded in 1924 and one of the seven supermajor oil companies. Its businesses cover the entire oil and gas chain, from crude oil and natural gas exploration and ...
and
Chevron
Chevron (often relating to V-shaped patterns) may refer to:
Science and technology
* Chevron (aerospace), sawtooth patterns on some jet engines
* Chevron (anatomy), a bone
* '' Eulithis testata'', a moth
* Chevron (geology), a fold in rock ...
. In 2018, in a move aimed to cut imports, oil companies operating in Indonesia were ordered to sell their crude oil to state-owned
Pertamina.
Manufacturing
![Bird Eye View Jababeka Industrial Estate](https://upload.wikimedia.org/wikipedia/commons/d/d3/Bird_Eye_View_Jababeka_Industrial_Estate.jpg)
Indonesia's
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
sector has historically played a key role in the country's economic development and now contributes to 20 percent of GDP.
The government has ambitious plans to propel the country into the top ten biggest economies in the world by 2030, with
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
at the heart of this goal. The main areas of production include
textiles and
garments
Clothing (also known as clothes, apparel, and attire) are items worn on the body. Typically, clothing is made of fabrics or textiles, but over time it has included garments made from animal skin and other thin sheets of materials and natural ...
,
food and
beverages
A drink or beverage is a liquid intended for human consumption. In addition to their basic function of satisfying thirst, drinks play important roles in human culture. Common types of drinks include plain drinking water, milk, juice, smoothies ...
(F&B),
electronics
The field of electronics is a branch of physics and electrical engineering that deals with the emission, behaviour and effects of electrons using electronic devices. Electronics uses active devices to control electron flow by amplification ...
,
automotive, and
chemicals
A chemical substance is a form of matter having constant chemical composition and characteristic properties. Some references add that chemical substance cannot be separated into its constituent elements by physical separation methods, i.e., wit ...
, with the majority of manufacturers in this sector consisting of micro, small, or medium-sized enterprises. The sector has posted a consistent four percent growth year-on-year since 2016 and registered 147 trillion rupiah (US$8.9 billion) in investments from January to September 2019.
Indonesia recently became the 10th-largest
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
nation in the world. Its large
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
sector accounts for almost a quarter of the nation's total GDP and employs over a fifth of Indonesia's working age population (around 25 million workers). Put into perspective, Indonesia's manufacturing sector is now larger than the
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to ...
sectors of the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
,
Russia
Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-eig ...
and
Mexico
Mexico (Spanish: México), officially the United Mexican States, is a country in the southern portion of North America. It is bordered to the north by the United States; to the south and west by the Pacific Ocean; to the southeast by Guatema ...
. Industry sector (including manufacturing) which accounts for 21% of local workers (having become more prominent in recent years). Indonesia's labour pool is estimated at around 120 million people, and is growing annually by approximately 2.4 million. As the economy has progressed beyond its predominantly agricultural base to a mixed composition, more workers – particularly women – are now employed in manufacturing and service-related professional industries.
With its rapidly growing middle class and competitive workforce, more foreign investors than ever before are taking advantage of Indonesia's strong manufacturing sector. However, the sector has significant challenges, including intense international competition, particularly from
China, increasing labour costs, high transportation and logistics costs, difficulties getting credit, and varying levels of transparency and clarity in regulations.
Renewable energy
Indonesia has significant potential for developing renewable energy, however, the country continues to rely heavily on the use of fossil fuels in domestic electricity production. Continued investment in and reliance on fossil fuels, such as coal, may result in fossil fuels becoming
stranded assets, leading to significant investments lost that the country could have received from renewable energy investors.
Automotive industry
In 2010, Indonesia sold 7.6 million
motorcycle
A motorcycle (motorbike, bike, or trike (if three-wheeled)) is a two or three-wheeled motor vehicle steered by a handlebar. Motorcycle design varies greatly to suit a range of different purposes: long-distance travel, commuting, cruising ...
s, which were mainly produced in the country with almost 100% local components.
Honda
is a Japanese public multinational conglomerate manufacturer of automobiles, motorcycles, and power equipment, headquartered in Minato, Tokyo, Japan.
Honda has been the world's largest motorcycle manufacturer since 1959, reaching a producti ...
led the market with a 50.95% market share, followed by
Yamaha Yamaha may refer to:
* Yamaha Corporation, a Japanese company with a wide range of products and services, established in 1887. The company is the largest shareholder of Yamaha Motor Company (below).
** Yamaha Music Foundation, an organization estab ...
with 41.37%. In 2011, the retail car sales total was 888,335 units, a 19.26% increase from last year.
Toyota
is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on . Toyota is one of the largest automobile manufacturers in the world, producing about 10 ...
dominated the domestic car market (35.34%), followed by
Daihatsu
, commonly known as Daihatsu, is a Japanese automobile manufacturer and one of the oldest surviving Japanese internal combustion engine manufacturers. The company's headquarters are located in Ikeda, Osaka Prefecture.
Historically, Daihatsu was ...
and
Mitsubishi with 15.44% and 14.56%, respectively. Since 2011, some local carmakers have introduced some
Indonesian national cars which can be categorized as Low-Cost Green Car (LCGC). In 2012, sales increased significantly by 24%, making it the first time that there were more than one million units in automobile sales.
In August 2014, Indonesia exported 126,935 Completely Build Up (CBU) vehicle units and 71,000 Completely Knock Down (CKD) vehicle units, while total production reached 878,000 vehicle units, constituting 22.5% of total output. Automotive export is more than double of its import. By 2020, it is predicted that the automotive exports will be the third after
CPO and shoe export. In August 2015, Indonesia exported 123,790 motorcycles. In the same year, Yamaha Motor Company, which exported 82,641, announced to make Indonesia as a base of exporting of its products.
In 2017, the country produced almost 1.2 million motor vehicles, ranking it as the
18th largest producer in the world. Nowadays, Indonesian automotive companies can produce cars with a high ratio of local content (80%–90%).
In 2018, the country produced 1.34 million cars and exported 346,000 cars, mainly to the Philippines and Vietnam.
Finance, real estate and business
There are 50 million small businesses in Indonesia, with online usage growth of 48% in 2010. Google announced that it would open a local office in Indonesia before 2012. According to
Deloitte
Deloitte Touche Tohmatsu Limited (), commonly referred to as Deloitte, is an international professional services network headquartered in London, England. Deloitte is the largest professional services network by revenue and number of professio ...
in 2011, Internet-related activities have generated 1.6% of the GDP. It is bigger than electronic and electrical equipment exports and
liquefied natural gas
Liquefied natural gas (LNG) is natural gas (predominantly methane, CH4, with some mixture of ethane, C2H6) that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It takes up about 1/600th the vol ...
at 1.51% and 1.45% respectively.
Up to the end of June 2011, the fixed state assets were Rp 1,265 trillion ($128 billion). The value of state stocks was Rp 50 trillion ($5 billion) while other state assets were Rp 24 trillion ($2.4 billion).
In 2015, financial services covered Rp 7,2 trillion. Fifty domestic and foreign conglomerations held around 70.5%. Fourteen of it were vertical conglomerations, 28 were horizontal, and eight are mixed. Thirty-five entities are mainly in the bank industries, 13 were in non-bank industries and one each in special financial industries and capital market industries.
Others
The Indonesian Textile Association has reported that in 2013, the textile sector is likely to attract investment of around $175 million. In 2012, the investment in this sector was $247 million, of which only $51 million was for new
textile machinery
Textile Manufacturing or Textile Engineering is a major industry. It is largely based on the conversion of fibre into yarn, then yarn into fabric. These are then dyed or printed, fabricated into cloth which is then converted into useful goods ...
.
Exports from the textile sector in 2012 were $13.7 billion.
In 2011, Indonesia released 55,010 working visas for foreigners, an increase of 10% compared to 2010, while the number of foreign residents in Indonesia, excluding tourists and foreign emissaries was 111,752, rose by 6% compared to last year. Those who received visas for six months to one year were mostly Chinese, Japanese, South Koreans, Indians, Americans and Australians. A few of them were entrepreneurs who made new businesses. Malaysia is the most common destination of
Indonesian migrant workers (including illegal workers). In 2010, according to a
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
report, Indonesia was among the world's top ten remittance-receiving countries with a value totaling $7 billion. In May 2011, six million Indonesian citizens were working overseas, 2.2 million of whom reside in Malaysia and another 1.5 million in
Saudi Arabia
Saudi Arabia, officially the Kingdom of Saudi Arabia (KSA), is a country in Western Asia. It covers the bulk of the Arabian Peninsula, and has a land area of about , making it the fifth-largest country in Asia, the second-largest in the A ...
.
Regional economies
GDP by provinces
There are 34 provinces in Indonesia. Below are the top 15 provinces in Indonesia ranked by GDP in 2019:
Foreign economic relations
ASEAN
Until the end of 2010, intra-ASEAN trade was still low as trade involved mainly exports to countries outside the region, with the exception of Laos and Myanmar, whose foreign trade was ASEAN-oriented. In 2009, realised
foreign direct investment (FDI) was US$37.9 billion and increased two-fold in 2010 to US$75.8 billion.
The ASEAN Framework Agreement on Trade in Services (AFAS) was adopted at the ASEAN Summit in Bangkok in December 1995. Under the agreement, member states enter into successive rounds of negotiations to liberalise trade in services with the aim of submitting increasingly higher levels of commitment. ASEAN has concluded seven packages of commitments under AFAS.
Mutual Recognition Agreements (MRAs) have been agreed upon by ASEAN for eight professions: physicians, dentists, nurses, architects, engineers, accountants, surveyors, and tourism professionals. Individuals in these professions will be free to work in any ASEAN states effective 31 December 2015.
In addition, six member states (
Malaysia
Malaysia ( ; ) is a country in Southeast Asia. The federation, federal constitutional monarchy consists of States and federal territories of Malaysia, thirteen states and three federal territories, separated by the South China Sea into two r ...
,
Vietnam
Vietnam or Viet Nam ( vi, Việt Nam, ), officially the Socialist Republic of Vietnam,., group="n" is a country in Southeast Asia, at the eastern edge of mainland Southeast Asia, with an area of and population of 96 million, making i ...
(2 exchanges),
Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...
,
Philippines
The Philippines (; fil, Pilipinas, links=no), officially the Republic of the Philippines ( fil, Republika ng Pilipinas, links=no),
* bik, Republika kan Filipinas
* ceb, Republika sa Pilipinas
* cbk, República de Filipinas
* hil, Republ ...
,
Thailand
Thailand ( ), historically known as Siam () and officially the Kingdom of Thailand, is a country in Southeast Asia, located at the centre of the Indochinese Peninsula, spanning , with a population of almost 70 million. The country is b ...
, and
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
) have collaborated on integrating their stock exchanges, which includes 70% of its transaction values with the goal to compete with international exchanges.
Single market will also include the
ASEAN Single Aviation Market
ASEAN Single Aviation Market (ASEAN-SAM) also known as ASEAN Open Sky Agreement/Policy, is the region's major aviation policy. It is geared towards the development of a unified and single aviation market among ASEAN members in Southeast Asia proje ...
(ASEAN-SAM), the region's aviation policy geared towards the development of a
unified and single aviation market in
Southeast Asia
Southeast Asia, also spelled South East Asia and South-East Asia, and also known as Southeastern Asia, South-eastern Asia or SEA, is the geographical south-eastern region of Asia, consisting of the regions that are situated south of mainlan ...
. It was proposed by the ASEAN Air Transport Working Group, supported by the ASEAN Senior Transport Officials Meeting, and endorsed by the ASEAN Transport Ministers.
It is expected to liberalise air travel between member states allowing ASEAN airlines to benefit directly from the growth in air travel, and also free up tourism, trade, investment, and service flows.
This policy supersedes existing unilateral, bilateral, and multilateral air services agreements among member states which are inconsistent with its provisions.
Japan
Indonesia and Japan signed the
Indonesia–Japan Economic Partnership Agreement (IJEPA), which had come into effect on 1 July 2008. The agreement was Indonesia's first bilateral free-trade agreement to ease the cross-border flow of goods and people as well as investment between both countries. In 2012, there were between 1,200 and 1,300 Japanese corporates operating in Indonesia, with some 12,000 Japanese nationals living in Indonesia. Japan has been investing in Indonesia for decades, particularly in the automotive, electronic goods, energy, and mining sectors. Prior to the formation of the Indonesian Republic, the Japanese had viewed Indonesia as an important source of natural resources. The Japanese need of natural resources was among the reasons that led the nation to advance further to the south in their military conquests during World War II. Today Indonesia is Japan's major supplier for
natural rubber
Rubber, also called India rubber, latex, Amazonian rubber, ''caucho'', or ''caoutchouc'', as initially produced, consists of polymers of the organic compound isoprene, with minor impurities of other organic compounds. Thailand, Malaysia, and ...
,
liquefied natural gas
Liquefied natural gas (LNG) is natural gas (predominantly methane, CH4, with some mixture of ethane, C2H6) that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport. It takes up about 1/600th the vol ...
,
coal
Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen.
Coal is formed when ...
, minerals,
paper pulp
Pulp is a Lignocellulosic biomass, lignocellulosic fibrous material prepared by chemically or mechanically separating cellulose fibers from wood, fiber crops, Paper recycling, waste paper, or cotton paper, rags. Mixed with water and other chemica ...
, seafood such as
shrimp and
tuna
A tuna is a saltwater fish that belongs to the tribe Thunnini, a subgrouping of the Scombridae ( mackerel) family. The Thunnini comprise 15 species across five genera, the sizes of which vary greatly, ranging from the bullet tuna (max len ...
, and
coffee
Coffee is a drink prepared from roasted coffee beans. Darkly colored, bitter, and slightly acidic, coffee has a stimulating effect on humans, primarily due to its caffeine content. It is the most popular hot drink in the world.
Seeds of ...
. Traditionally Indonesia has been regarded as a major market of Japanese automotive and electronic goods. For Japanese businesses, Indonesia has been a location for low-cost manufacturing operations as well as being the source of various natural resources required by those operations. Approximately 1,000 Japanese companies operate in Indonesia which employ approximately 300,000 people. Major Japanese factories are concentrated east of Jakarta with high concentrations in
Bekasi
Bekasi (, su, ) is a city in West Java, Indonesia, located on the eastern border of Jakarta.the city of planet Bekasi is his nickname.It serves as a commuter city within the Jakarta metropolitan area. According to the 2020 Census by Statistic ...
,
Cikarang
Cikarang is a town serving the seat of Bekasi Regency, West Java, Indonesia. The biggest industrial estate in Southeast Asia, Kota Jababeka is located there.
Industrial area
Cikarang is an area located in Kota Deltamas that includes the gov ...
and
Karawang,
West Java
West Java ( id, Jawa Barat, su, ᮏᮝ ᮊᮥᮜᮧᮔ᮪, romanized ''Jawa Kulon'') is a province of Indonesia on the western part of the island of Java, with its provincial capital in Bandung. West Java is bordered by the province of Banten ...
.
China
Trade with China has increased since the 1990s, and in 2014, China became Indonesia's second-largest export destination after Japan. Trade between China and Indonesia is on the rise, especially after the implementation of
ACFTA since early 2010. Indeed, while in 2003 trade between Indonesia and China reached only US$3.8 billion, in 2010 it multiplied almost 10 times and reached US$36.1 billion.
China's
transformation
Transformation may refer to:
Science and mathematics
In biology and medicine
* Metamorphosis, the biological process of changing physical form after birth or hatching
* Malignant transformation, the process of cells becoming cancerous
* Tran ...
into Fastest growing country in the 21st century has led to an increase of foreign investments in the
bamboo network, a network of
overseas Chinese businesses operating in the markets of Southeast Asia that share common family and cultural ties.
However the free trade with China has caused much anxiety in Indonesia, since inflows of cheap products from China could harm Indonesian industry. Indonesian private sector and civil society organizations vigorously lobbied the Indonesian government and members of parliament, insisting that Indonesia should either pull out of the agreement or renegotiate its terms with Beijing.
China has remained on top of Indonesia's key major trading partners, serving as the country's largest export and import market. China serves as Indonesia's largest export destination after overtaking Japan and United States, reaching US$16.8 billion. China is also Indonesia's most important source of imports, reaching US$30.8 billion, or 22.7% of Indonesian imports in 2016. The balance however was in favour of China as Indonesia booked a trade deficit of US$14 billion in 2016.
From China's perspective, since 2010 ASEAN as a whole has become its fourth-largest trading partner after the European Union, Japan and the United States. Among ASEAN member countries, Indonesia was China's fourth-largest trading partner, which, according to data as of May 2010 from the Ministry of Commerce of the People's Republic of China, amounted to US$12.4 billion, after
Malaysia
Malaysia ( ; ) is a country in Southeast Asia. The federation, federal constitutional monarchy consists of States and federal territories of Malaysia, thirteen states and three federal territories, separated by the South China Sea into two r ...
(US$22.2 billion),
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
(US$17.9 billion) and
Thailand
Thailand ( ), historically known as Siam () and officially the Kingdom of Thailand, is a country in Southeast Asia, located at the centre of the Indochinese Peninsula, spanning , with a population of almost 70 million. The country is b ...
(US$15.7 billion).
With China's economic rise, Indonesia has been intensifying its trade relationship with China to counterbalance its ties with the West. By 2020, China had become Indonesia's largest export destination.
South Korea
In the past, the relations were only developed around trade and investments, such as the forestry and garment sectors. Today the cooperation has been expanded to a number of mega projects and advanced industries. With US$27 billion in bilateral trade, South Korea became the fourth biggest trading partner of Indonesia in 2012. It became the third-biggest foreign investor in Indonesia, with US$1.94 billion in investment.
There are large numbers of South Korean companies that have been investing and operating in Indonesia, such as Miwon (Daesang Corporation),
Lotte, Yong Ma,
Hankook Tire
Hankook Tire & Technology (; , also known simply as Hankook and stylised ), is a South Korean tire company. Based in Seoul, Hankook is the seventh largest tire company in the world.
History
Hankook Tire was established by Jae Hun Chung's grandf ...
,
Samsung
The Samsung Group (or simply Samsung) ( ko, 삼성 ) is a South Korean multinational manufacturing conglomerate headquartered in Samsung Town, Seoul, South Korea. It comprises numerous affiliated businesses, most of them united under the ...
,
LG,
Kia Motors
Kia Corporation, commonly known as Kia (, ; formerly known as Kyungsung Precision Industry and Kia Motors Corporation), is a South Korean multinational automobile manufacturer headquartered in Seoul, South Korea. It is South Korea's second lar ...
, and
Hyundai Hyundai is a South Korean industrial conglomerate ("chaebol"), which was restructured into the following groups:
* Hyundai Group, parts of the former conglomerate which have not been divested
** Hyundai Mobis, Korean car parts company
** Hyundai ...
. In 2011, Hankook announced a US$353 million investment into a production plant located in Bekasi, West Java, Indonesia.
In 2019, trade between Indonesia and South Korea was worth $15.65 billion, and between 2015 and 2019 South Korean companies invested nearly $7 billion in Indonesia. In December 2020, Indonesia and South Korea signed a comprehensive economic partnership. It is equivalent to a
free trade agreement
A free-trade agreement (FTA) or treaty is an agreement according to international law to form a free-trade area between the cooperating states. There are two types of trade agreements: bilateral and multilateral. Bilateral trade agreements occ ...
, though focuses on a broader scope of economic cooperation. Under the deal, Indonesia will scrap 94.8% of tariffs on South Korean products while South Korea will scrap 95.8% of tariffs on Indonesian products.
United States
At the beginning of the post-Suharto era, US exports to Indonesia in 1999 totaled $2 billion, down significantly from $4.5 billion in 1997. The main exports were construction equipment, machinery, aviation parts, chemicals, and agricultural products. US imports from Indonesia in 1999 totaled $9.5 billion and consisted primarily of clothing, machinery and transportation equipment, petroleum, natural rubber, and footwear. Financial assistance to Indonesia is coordinated through the
Consultative Group on Indonesia
The Consultative Group on Indonesia (CGI) gathered Indonesia's international donors from 1992 to 2007 to coordinate the flow of foreign aid to Indonesia. It was set up by the Indonesian government and the World Bank.
History
During the 1990s a ...
(CGI) formed in 1989. It includes 19 donor countries and 13 international organizations that meet annually to coordinate donor assistance. In 2019, as Indonesia's share of global trade exceeded 0.5 percent, the United States Trade Representatives decided not to classify Indonesia as a "developing country." Despite a revocation of this status, the Indonesian government has assured that this would not change the current
Generalized System of Preferences
The Generalized System of Preferences, or GSP, is a preferential tariff system which provides tariff reduction on various products. The concept of GSP is very different from the concept of " most favored nation" (MFN). MFN status provides equal tre ...
facilities that Indonesia had enjoyed from the United States.
European Union
The EU and Indonesia have built robust commercial relations, with
bilateral trade
Bilateral trade or clearing trade is trade exclusively between two states, particularly, barter trade based on bilateral deals between governments, and without using hard currency for payment. Bilateral trade agreements often aim to keep trade def ...
amounting to approximately €25 billion in 2012 resulting in a sizeable €5.7 billion trade surplus for Indonesia with the EU. In the past few years trade between EU and Indonesia has been marked by an upward trend. Whereas total trade was worth almost €16 billion in 2009, by 2011 it had already reached €23.5 billion. For the EU, Indonesia is the 24th largest import source (share 0.9%) and the 30th largest export destination (share 0.6%). Inside the ASEAN-region, Indonesia ranks fourth in terms of total trade. The EU is Indonesia's 4th largest trading partner after
Japan,
China and
Singapore
Singapore (), officially the Republic of Singapore, is a sovereign island country and city-state in maritime Southeast Asia. It lies about one degree of latitude () north of the equator, off the southern tip of the Malay Peninsula, bor ...
, representing almost 10% of its total external trade. The EU is the second largest investor in the Indonesian economy.
Indonesia mostly exports to the EU agricultural products and processed resources, mainly palm oil, fuels and mining products, textiles and furniture. EU exports to Indonesia consist mainly of high-tech machinery and transport equipment, chemicals and various manufactured goods. Essentially, trade flows between Indonesia and the EU complement each other.
After negotiations on a free trade agreement with ASEAN got increasingly difficult, the EU began pursuing negotiations with individual ASEAN states. The EU and Indonesia are currently working towards an ambitious Comprehensive Economic Partnership Agreement covering trade, investment and services.
India
On 25 January 2011, after talks by Indian Prime Minister
Manmohan Singh and visiting President of Indonesia
Susilo Bambang Yudhoyono, India and Indonesia had signed business deals worth billions of dollars and set an ambitious target of doubling trade over the next five years. India also has further economic ties with Indonesia through its free trade agreement with ASEAN, of which Indonesia is a member. The two countries target to achieve bilateral trade of $25 billion by 2015, with cumulative Indian investments of $20 billion in Indonesia.
Macro-economic trend
This is a chart of trend of Indonesia's GDP at market prices by the IMF with figures in millions of rupiah.
For purchasing power parity comparisons, the exchange rate for 1 US dollar is set at 3,094.57 rupiah.
Average net wage in Indonesia varies by sector. In February 2017 the electricity, gas, and water sector has the highest average net wage, while the agriculture sector has the lowest.
Investment
![Bursa Efek Jakarta - panoramio](https://upload.wikimedia.org/wikipedia/commons/1/1d/Bursa_Efek_Jakarta_-_panoramio.jpg)
Since the late 1980s, Indonesia has made significant changes to its regulatory framework to encourage economic growth. This growth was financed mostly from private investment, both foreign and domestic. US investors dominated the oil and gas sector and undertook some of Indonesia's largest mining 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 UK, Singapore, the Netherlands, Qatar, Hong Kong, Taiwan and South Korea.
The 1997 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 the establishment of a functioning legal and judicial system, adherence to competitive processes, and adoption of internationally acceptable accounting and disclosure standards. Despite improvements of laws in recent years, Indonesia's intellectual property rights regime remains weak, and lack of effective enforcement is a significant concern. Under Suharto, Indonesia had moved towards the private provision of public infrastructure, including electric power, toll roads, and telecommunications. The 1997 crisis brought to light a severe weakness 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 labour 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
Indonesia Stock Exchange (IDX) ( id, Bursa Efek Indonesia, formerly nl, Vereniging voor de Effectenhandel) is a stock exchange based in Jakarta, Indonesia. It was previously known as the Jakarta Stock Exchange (JSX) before its name changed in ...
had 341 listed companies with a combined market capitalization of $269.9 billion. As of November 2010, two-thirds of the market capitalization was in the form of foreign funds, and only around 1% of the population have stock investments. Efforts are further being made to improve the business and investment environment. Within the
World Bank
The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
'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 unfavorable investment climate persists. For example, potential foreign investors and their executive staff cannot maintain their 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 (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspect ...
as either acquirer or target with a total known value of $137 billion. In 2010, 609 transactions were announced, which is a new record. Numbers had increased by 19% compared to 2009. The value of deals in 2010 was US$17 billion, which is the second-highest number ever. In 2012, Indonesia realized total investments of $32.5 billion, surpassing its annual target $25 billion, as reported by Investment Coordinating Board (BKPM) on 22 January. The primary investments were in the mining, transport and chemicals sectors.
In 2011, the Indonesian government announced a new ''Masterplan'' (known as the ''MP3EI'', or ''Masterplan Percepatan dan Perluasan Pembangunan Ekonomi Indonesia'', the ''Masterplan to Accelerate and Expand Economic Development in Indonesia''). The aim was to encourage increased investment, particularly in
infrastructure projects across Indonesia.
Indonesia regained its investment grade rating from
Fitch Rating in late 2011, and from
Moody's Rating in early 2012, after losing it in the 1997 crisis, during which Indonesia spent more than Rp. 450 trillion ($50 billion) to bail out lenders from banks. Fitch raised Indonesia's long-term and local currency debt rating to BBB− from BB+ with both ratings is stable. Fitch also predicted that the economy would grow at least 6% on average per year through 2013, despite a less conducive global economic climate. Moody's raised Indonesia's foreign and local currency bond ratings to Baa3 from Ba1 with a stable outlook. In May 2017,
S&P Global
S&P Global Inc. (prior to April 2016 McGraw Hill Financial, Inc., and prior to 2013 The McGraw–Hill Companies, Inc.) is an American publicly traded corporation headquartered in Manhattan, New York City. Its primary areas of business are financ ...
raised Indonesia's investment grade from BB+ to BBB− with a stable outlook, due to the economy experiencing a rebound in exports and strong consumer spending during early 2017.
Public expenditure
In 2015, total public spending was Rp 1,806 trillion (US$130.88 billion, 15.7% of GDP). Government revenues, including those from state-owned enterprises (BUMN), totaled Rp 1,508 trillion (US$109.28 billion, 13.1% of GDP) resulting in a deficit of 2.6%.
Since the 1997 crisis that caused an increase in debt and public subsidies and a decrease in development spending, Indonesia's public finances have undergone a major transformation. As a result of a series macroeconomic policies, including a low budget deficit, Indonesia is considered to have moved into a situation of financial resources sufficiency to address development needs. Decentralization, enacted during the Habibie administration, has changed the manner of government spending, which has resulted in around 40% of public funds being transferred to regional governments by 2006.
In 2005, rising international oil prices led to the government's decision of slashing fuel subsidies. It led to an extra US$10 billion for government spending on development,
and by 2006, there were an additional 5 billion due to steady growth, and declining debt service payments.
It was the country's first "fiscal space" since the revenue windfall during the 1970s oil boom. Due to decentralization and fiscal space, Indonesia has the potential to improve the quality of its public services. Such potential also enables the country to focus on further reforms, such as the provision of targeted infrastructure. Careful management of allocated funds has been described as Indonesia's main issue in public expenditure.
In 2018, President
Joko Widodo substantially increased the amount of debt by taking foreign loans. Indonesia has increased the debt by Rp 1,815 trillion compared to his predecessor, SBY. He has insisted that the loan is used for productive long-term projects such as building roads, bridges, and airports. Finance Minister
Sri Mulyani
Sri Mulyani Indrawati (born 26 August 1962) is an Indonesian economist who has been Minister of Finance of Indonesia since 2016; previously she served in the same post from 2005 to 2010. In June 2010 she was appointed as Managing Director of th ...
also stated that despite an increase of foreign loans and debt, the government has also increased the budget for infrastructure development, healthcare, education, and budget given to regencies and villages. The government is insisting that foreign debt is still under control, and complying with relevant laws that limit debt to be under 60% of GDP.
Regional performance
Based on the regional administration implementation performance evaluation of 2009, by order, the best performance were:
* 3 provinces:
North Sulawesi
North Sulawesi ( id, Sulawesi Utara) is a province of Indonesia. It is located on the Minahasa Peninsula of Sulawesi, south of the Philippines and southeast of Sabah, Malaysia. It borders the Philippine province of Davao Occidental and Socc ...
,
South Sulawesi , and
Central Java;
* 10 regencies:
Jombang,
Bojonegoro
Bojonegoro Regency ( id, Kabupaten Bojonegoro, older spelling is ''Kabupaten Bodjanegara'', jv, ꦑꦧꦸꦥꦠꦺꦤ꧀ꦨꦗꦤꦼꦒꦫ, translit=Kabupatèn Bojånegårå) is a regency in East Java, Indonesia, about 110 km west of Sur ...
and
Pacitan
Pacitan Regency ( id, Kabupaten Pacitan) is a regency located in the southwestern corner of East Java Province, with Central Java Province on its western border. Located between 7.55° - 8.17°S and 110.55° - 111.25°E. The borders of Pacitan Re ...
in
East Java
East Java ( id, Jawa Timur) is a Provinces of Indonesia, province of Indonesia located in the easternmost hemisphere of Java island. It has a land border only with the province of Central Java to the west; the Java Sea and the Indian Ocean bord ...
Province,
Sragen
Sragen Regency ( jv, ꦑꦧꦸꦥꦠꦺꦤ꧀ꦱꦿꦒꦼꦤ꧀, translit=Kabupatèn Sragèn) is a regency ( id, kabupaten) in the eastern part of Central Java province in Indonesia. It covers an area of 941.56 km2 and had a population of 8 ...
in Central Java,
Boalemo in
Gorontalo
Gorontalo ( Gorontaloan: ''Hulontalo'') is a province of Indonesia on the island of Sulawesi. Located on the Minahasa Peninsula, Gorontalo was formerly part of the province of North Sulawesi until its inauguration as a separate province on 5 D ...
,
Enrekang in South Sulawesi,
Buleleng
Buleleng ( ban, ᬓᬩᬸᬧᬢᬾᬦ᭄ᬩᬸᬮᭂᬮᭂᬂ, Kabupatén Buléléng) is a regency (''kabupaten'') of Bali, Indonesia. It has an area of 1,365.88 km2 and population of 624,125 at the 2010 census and 791,910 at the 2020 cen ...
in
Bali,
Luwu Utara in South Sulawesi,
Karanganyar in Central Java, and
Kulon Progo
Kulon Progo Regency ( jv, Kulon Praga, , ) is one of the four regencies within the Yogyakarta Special Region, Indonesia. It is located on the island of Java. The regency's name stems from the fact that it is situated to the west (in Javanese "ku ...
in
Yogyakarta
Yogyakarta (; jv, ꦔꦪꦺꦴꦒꦾꦏꦂꦠ ; pey, Jogjakarta) is the capital city of Special Region of Yogyakarta in Indonesia, in the south-central part of the island of Java. As the only Indonesian royal city still ruled by a monarchy, ...
;
* 10 cities:
Surakarta and
Semarang in Central Java,
Banjar in
West Java
West Java ( id, Jawa Barat, su, ᮏᮝ ᮊᮥᮜᮧᮔ᮪, romanized ''Jawa Kulon'') is a province of Indonesia on the western part of the island of Java, with its provincial capital in Bandung. West Java is bordered by the province of Banten ...
,
Yogyakarta
Yogyakarta (; jv, ꦔꦪꦺꦴꦒꦾꦏꦂꦠ ; pey, Jogjakarta) is the capital city of Special Region of Yogyakarta in Indonesia, in the south-central part of the island of Java. As the only Indonesian royal city still ruled by a monarchy, ...
city in
Yogyakarta
Yogyakarta (; jv, ꦔꦪꦺꦴꦒꦾꦏꦂꦠ ; pey, Jogjakarta) is the capital city of Special Region of Yogyakarta in Indonesia, in the south-central part of the island of Java. As the only Indonesian royal city still ruled by a monarchy, ...
,
Cimahi
Cimahi () is a landlocked city located immediately west of the larger city of Bandung, in West Java Province, Indonesia and within the Bandung Metropolitan Area. It covers an area of 40.37 km2 and had a population at the 2010 Census of 541,1 ...
in West Java,
Sawahlunto
Sawahlunto ( Jawi: ) is a city in Western Sumatra province, Indonesia, and lies 90 kilometres (a 2-hour drive) from Padang, the provincial capital. Sawahlunto is known as the site for the oldest coal mining site in Southeast Asia. Sawahlunto is g ...
in
West Sumatra
West Sumatra ( id, Sumatra Barat) is a province of Indonesia. It is located on the west coast of the island of Sumatra and includes the Mentawai Islands off that coast. The province has an area of , with a population of 5,534,472 at the 2020 cen ...
,
Probolinggo
Probolinggo ( id, Kota Probolinggo, mad, Prabâlingghâ) is a city on the north coast of East Java province, Indonesia. It covers an area of 56.67 sq. km, and had a population of 217,062 at the 2010 census and 239,649 at the 2020 census ...
and
Mojokerto
Mojokerto ( jv, ꦩꦗꦏꦼꦂꦠ (''Måjåkěrtå'')) is a city in East Java Province, Indonesia. It is located 40 km southwest of Surabaya, and constitutes one of the component units of the Surabaya metropolitan area (known as Gerbangkert ...
in East Java, and
Sukabumi and
Bogor 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 Japanese companies.
Wealth
National net wealth
National net wealth, also known as national net worth, is the total sum of the value of a nation's
assets
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
minus its
liabilities. It refers to the total value of net
wealth
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
possessed by the citizens of a nation at a set point in time. This figure is an important indicator of a nation's ability to take on
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
and sustain
spending and is influenced not only by real estate prices, equity market prices, exchange rates, liabilities and incidence in a country of the adult population but also by
human resources
Human resources (HR) is the set of people who make up the workforce of an organization, business sector, industry, or economy. A narrower concept is human capital, the knowledge and skills which the individuals command. Similar terms include ...
,
natural resources
Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. ...
and
capital and technological advancements, which may create new assets or render others worthless in the future. According to
Credit Suisse, Indonesia has national net wealth of approximately $3.199 trillion, or about 0.765% of world net wealth, placing Indonesia at 17th, above Russia, Brazil, and Sweden.
High-net-worth individuals
According to
Asia Wealth Report, Indonesia has the highest growth rate of
high-net-worth individuals (HNWI) predicted among the 10 most Asian economies. The Wealth Report 2015 by Knight Frank reported that in 2014 there were 24 individuals with a net worth above US$1 billion. 18 of them lived in
Jakarta and the others spread among other large cities in Indonesia. 192 persons can be categorized as centamillionaires with over US$100 million of wealth and 650 persons as high-net-worth individuals with wealth exceeding US$30 million.
Challenges
Embezzlement and corrupt bureaucracy
![KPKHQ](https://upload.wikimedia.org/wikipedia/commons/1/1c/KPKHQ.jpg)
Corruption is pervasive in the Indonesian government, affecting many fields that are central to barrier the country's economic development from local governments, the police, the private sectors even various ministerial institutions which are close to the president. It is related to problems of human capacities and technical resources remains a major challenge in merging effectiveness and integrity in public administrations, especially in regencies and cities. A 2018
World Economic Forum
The World Economic Forum (WEF) is an international non-governmental and lobbying organisation based in Cologny, canton of Geneva, Switzerland. It was founded on 24 January 1971 by German engineer and economist Klaus Schwab. The foundation, ...
survey reports that corruption is the most problematic issue regarding doing business in Indonesia, as well as inefficient government bureaucracy policies. The survey also showed that 70% of entrepreneurs believe that corruption has increased in Indonesia, while low trust in the private sector is a major obstacle to foreign investment in the country.
In 2019, a
controversial bill regarding to anti-corruption body (
Corruption Eradication Commission
Corruption Eradication Commission ( id, Komisi Pemberantasan Korupsi), abbreviated as KPK, is an Indonesian government agency established to prevent and fight corruption in the country. Firli Bahuri, an active police general, is the current ch ...
(KPK)) which reduces the commission's effectiveness on tackling widespread corruption problems and strips it from its independence was passed despite massive protests across the country. There were 26 points in the revised law that crippling the commission, and might further prevent more progressive efforts to eradicate corruption cases in Indonesia.
Labour unrest
As of 2011, labour militancy was increasing with a major strike at the
Grasberg mine
The Grasberg mine has one of the largest gold mining, reserves of gold and copper extraction, copper in the world. It is located in Mimika Regency, Central Papua, Indonesia near Puncak Jaya. It is operated by PT Freeport Indonesia (PTFI, ''s ...
, the world's largest
gold mine Gold Mine may refer to:
* Gold Mine (board game)
*Gold Mine (Long Beach), an arena
*"Gold Mine", a song by Joyner Lucas from the 2020 album ''ADHD
Attention deficit hyperactivity disorder (ADHD) is a neurodevelopmental disorder characteri ...
as well as the second-largest
copper mine
Copper extraction refers to the methods used to obtain copper from its ores. The conversion of copper consists of a series of physical and electrochemical processes. Methods have evolved and vary with country depending on the ore source, loca ...
, and numerous strikes elsewhere. A common issue was the attempts by foreign-owned enterprises to evade Indonesia's strict labour laws by calling their employees'
contract workers. ''The New York Times'' expressed concern that Indonesia's cheap labor advantage might be lost. However, a large pool of the unemployed who will accept substandard wages and conditions remains available. One factor in the increase of militancy is increased awareness via the Internet of prevailing wages in other countries, and the generous profits foreign companies are making in Indonesia.
On 1 September 2015, thousands of workers in Indonesia staged massive demonstrations across the country in pursuit of higher wages and improved labour laws. Approximately 35,000 people rallied in several parts of the country. They demanded a 22% to 25% increase in the minimum wage by 2016 and lower prices on essential goods, including fuel. The unions also want the government to ensure job security and provide the fundamental rights of the workers.
In 2020, thousands of workers across the country held a massive march to protest against the
Omnibus Law on Job Creation
The Job Creation Act ( id, UU Cipta Kerja), officially Law Number 11/2020 on Job Creation (''Undang-Undang Nomor 11 Tahun 2020 Tentang Cipta Kerja'', or UU 11/2020), is a bill that was passed on 5 October 2020 by Indonesia's People's Represent ...
that included several controversial rules, which revised minimum wages, lowered severance pay, relaxed firing rules, among other disadvantaging regulations for labors and factory workers.
Inequality
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 Papua. Geographically, the poorest fifth regions account for just 8% of consumption, while the wealthiest 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 a 2011 Makassar Indonesian Chamber of Commerce and Industry (Kadin) meeting, Disadvantaged Regions Minister said there are 184 regencies classified as disadvantaged areas, with around 120 in eastern Indonesia. 1% of Indonesia's population has 49.3% of the country's $1.8 trillion wealth, down from 53.5%. However, it is in the fourth rank after Russia (74.5%), India (58.4%) and Thailand (58%).
Inflation
Inflation has long been a problem in Indonesia. Because of political turmoil, the country had once suffered hyperinflation, with 1,000% annual inflation between 1964 and 1967, and it had been enough to create severe poverty and hunger. Even though the economy recovered very quickly during the first decade of the New Order administration (1970–1981), never once was the inflation less than 10% annually. The inflation slowed during the mid-1980s; however, the economy was also languid due to the decrease in oil price that reduced its export revenue dramatically. The economy was again experiencing rapid growth between 1989 and 1997 due to the improving export-oriented manufacturing sector. Still, the inflation rate was higher than economic growth, and this caused a widening gap among several Indonesians. The inflation peaked in 1998 during the 1997 crisis, with over 58%, causing poverty to raise to the levels in the 1960s. During the economic recovery and growth in recent years, the government has been trying to lower the inflation rate. However, it seems that inflation has been affected by global fluctuation and domestic market competition. As of 2010, the inflation rate was approximately 7%, when its economic growth was 6%. To date, inflation is affecting the Indonesian lower middle class, especially those who are not able to afford food after price hikes. At the end of 2017, Indonesia's inflation rate was 3.61%, or higher than the government-set forecast of 3.0–3.5%.
See also
*
Alcohol in Indonesia
*
Bamboo network
*
CIVETS
A civet () is a small, lean, mostly nocturnal mammal native to tropical Asia and Africa, especially the tropical forests. The term civet applies to over a dozen different species, mostly from the family Viverridae. Most of the species diversity ...
countries
*
COVID-19 pandemic in Indonesia
The COVID-19 pandemic in Indonesia is part of the ongoing worldwide pandemic of coronavirus disease 2019 () caused by severe acute respiratory syndrome coronavirus 2 (). It was confirmed to have spread to Indonesia on 2 March 2020, afte ...
*
Indonesia Stock Exchange
Indonesia Stock Exchange (IDX) ( id, Bursa Efek Indonesia, formerly nl, Vereniging voor de Effectenhandel) is a stock exchange based in Jakarta, Indonesia. It was previously known as the Jakarta Stock Exchange (JSX) before its name changed in ...
*
Developing 8 Countries
The D-8 Organization for Economic Cooperation, also known as Developing-8, is an organisation for development co-operation among the following countries: Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan, and Turkey. The objective ...
*
European Union-Indonesia trade relations
*
G-20 major economies
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigation ...
*
G20 developing nations
The G20 developing nations (and, occasionally, the G21, G23 or G20+) is a bloc of developing nations established on 20 August 2003. Distinct and separate from the G20 major economies, the group emerged at the 5th Ministerial WTO conference, hel ...
*
Gas subsidies
*
List of main infrastructure projects in Indonesia
*
List of largest companies in Indonesia
*
Next Eleven
Terence James O'Neill, Baron O'Neill of Gatley (born 17 March 1957) is a British economist best known for coining BRICs, the acronym that stands for Brazil, Russia, India, and China—the four once rapidly developing countries that were though ...
*
Science and technology in Indonesia
Indonesia may not be considered one of the leading countries in science and technology developments. However, there are numerous examples of notable scientific and technological innovation, developments and achievements contributed by Indonesia ...
*
Taxation in Indonesia
Taxation in Indonesia includes income tax, value added tax (goods and sales tax) and carbon tax.
Definitions
Indonesian taxation is based on Article 23A of UUD 1945 ( 1945 Indonesian Constitution), where tax is an enforceable contribution exposed ...
*
Tourism in Indonesia
Tourism in Indonesia is an important component of the Indonesian economy as well as a significant source of its foreign exchange revenues. Indonesia was ranked at 20th in the world tourist Industry in 2017, also ranked as the ninth-fastest g ...
References
Further reading
*
External links
Indonesia Economic Aftershockfrom th
Dean Peter Krogh Foreign Affairs Digital ArchivesBKPM – Indonesia Investment Coordinating Board An
Indonesia Investment NewsComprehensive current and historical economic dataWorld Bank Summary Trade Statistics Indonesia* Tariffs applied by Indonesia as provided by ITC'
ITC Market Access Map an online database of customs tariffs and market requirements
{{APEC
Indonesia
Indonesia, officially the Republic of Indonesia, is a country in Southeast Asia and Oceania between the Indian and Pacific oceans. It consists of over 17,000 islands, including Sumatra, Java, Sulawesi, and parts of Borneo and New Guine ...