Indonesia Economic Profile
In world struggling with ‘credit crunch’ including its ‘strong’ economies such the US, EU, UK, Japan and China, the economy of the Republic of Indonesia stands out, not only in the Asia-Pacific region, but also globally, for its health and vitality.
It is a remarkable turn around as more than 10 years ago during the financial and economic crisis of 1997 and 1998 that hit the East Asian ‘tiger economies’ Indonesia was once considered a ‘basket case’ and dismissed an al almost ‘failed state’.
Yesterday’s ‘basket case’ is today’s ‘beacon’, economically and politically of the region, proving that economic stability and political stability are two sides of the same coin.
This is the result of the path of or reformasi that Indonesia followed: Reform in the justice system means that the rule of law applies, creating more certainty for foreign investors in Indonesia.
Reform in the political system has shown that in Indonesia as the world’s largest Moslem majority country with more than 220 million Islam, modernity and democracy are not mutually exclusive but reinforce each other. The people have participated in direct national parliamentary and presidential elections for the second time in five years, which received praise as free, fair and transparent.
Many lessons were learned economically in the recovery process post 1998. For the past five years Indonesia’s growth rate has averaged around 6% while GDP per capita has grown from U$1180 in 2004 to U$2254 in 2008; Last year the economy grew by 6.3% and this year it is expected to grow by 4.3%, according to the World Bank’s estimates.
Traditionally Indonesia was a producer of raw materials and natural resources, such as minerals, coal, natural gas and oil etc; tropical commodities like coffee, tea, tobacco, sugar and palm oil etc, but by 2008 the industry and services sectors contributed 48% and 37% respectively to the national income.
This trend is also reflected in the fact that 50% of its population was expected to live in urban areas by 2010 and that domestic consumption is expected to continue to grow, while the national level of poverty was reduced from 16.4% in 2004 to 9.9% in 2009, parallel to a reduction in unemployment from 9.9% in 2004 to 8.1% in 2009.
This has been achieved without incurring further foreign debt; debt ratio has been reduced from more than 60% a decade ago to 32% of GDP today, while the capital adequacy ratio (CAR) level is very healthy at 17.3%. Non performing loans (NPL) are less than 5% and Indonesia’s foreign reserves reached U$60 billion, sufficient to finance five months imports.
Indonesia’s foreign trade reached a value of U$132 billion in 2008, representing 25% of GDP or worth U$510 billion as well as further inward investment which amounted to more than U$22 billion for the last five years.
The incoming administration of President Susilo Bambang Yudhoyono is committed to develop further good governance, improve legal certainty, the business climate even further, combat corruption, to ensure more effective decentralisation, and last but not least environmental sustainability.
The latter is essential to conserve Indonesia’s natural and cultural heritage for which Indonesia is famous and on which its tourism industry, as well as Indonesia’s traditional craft skills such as batik.
