Indonesia: the economic development & reform

1. Indonesia: the economic development & reform [ Abdul Rozaq] [Dwi Wahyu Handayani] [Muhammad Ramdhan] [Theodora Elfani]

2. Where?

3. Indonesia: Fast Facts • Population: about 240 million. No. 4 in the world (July 2009) • Age structure: 0-14 years: 28,1%, 15-64 years: 66% 65- years and over: 6 % (2009) • Total Fertility Rate: 2,31 children born/woman (2009) • Life expectancy: men: 68,2 years, women: 73,3 years • GDP: $ 916,7 billion. No. 19 in the World. (2008) • GDP per capita: $ 2,271.2 No.116 (2008 $1 = Rp9,554), ( est. $ 3,900, • Major Industry: petroleum and natural gas, textiles, apparel, footwear, mining, cement, chemical fertilizers, plywood, rubber, food, tourism. • Major trading partner (2008) • Export: Asia: 58,0 %, North America: 10,9%,Western Europe: 2,5%. • Import: Asia: 72,5%, Middle East: 3,0 %, North America: 3,0%,Western Europe: 2,0 %. Source: Central Statistics Agency, Indonesia

4. Economic Review • No country was more deeply affected by the 1997-98 Asian financial crisis than Indonesia—or more profoundly changed by it. • Indonesia has now emerged with renewed investment and robust growth. It is a more open, diverse and decentralized economy. • With the restoration of macro-economic stability, Indonesia has embarked on a wide structural reform to help it remain competitive and to position for growth in the long term.

5. New Era of Growth Continued efforts to reform the economy has allowed Indonesia to enjoy its most rapid growth since the Financial Crisis of 1997/98 Source: Bank of Indonesia, ADB The Government gives special focus on such key areas as investment, macroeconomic stability, trade, energy, agriculture and others which in turn allows Indonesia to enjoy its most rapid growth since the Financial Crisis of 1997/98 Source: Bank of Indonesia, ADB

6. Sources of Growth Before Rupiah depreciation (1990-1997), Investment played an important role. However as Rupiah depreciated in 1998, there has been a significant has been a significant contribution of Net Export. Source: ADB

7. Unemployment Poverty has been reduced significantly alongside the reduction of unemployment amid a surge in poverty in 2005-2006 Poverty reduction takes place in both rural and urban areas

8. Inflation, 1991-2007 Source: Central Statistics Agency, Coordinating Ministry for Economic Affairs, Indonesia 2008 inflation was 11.06%, below the originally forecasted 12.9% (June 2008 estimate). To better compete at global level, Indonesia needs to curb inflation to 3%-5% per annum.

9. Investment Improving macroeconomic environment and policy initiatives have increased the attractiveness of Indonesia as a destination for investment It have helped restored world confidence in Indonesia . A report by the Growth Commission - chaired by Nobel laureate Prof. Michael Spence, identifies Indonesia as one of 15 nations capable of sustaining high growth in the past and having potential for accelerated growth in the future Source: Coordinating Ministry for Economic Affairs, Indonesia Such development has allowed Indonesia to be invited in 2008 – along with China, India, South Africa and Brazil – to join the club of Enhanced Engagement Countries of OECD. As an initial step, Indonesia has become a full member of the OECD Development Center

10. Responding to the Crisis Responses have been designed not only to address the short-term impacts of global financial crisis, but also lay down more robust foundations and strengthen the underpinnings of the economy • Government’s responses to the crisis are four-folds: • Bolstering financial sector resilience , aimed at safeguarding financial stability while moving forward with financial sector reforms • Fiscal consolidation, which lies in improved structure of state revenues, greater effectiveness of government expenditure, and reduced fiscal risks particularly with regard to budget deficit financing • Providing stimulus for growth in real sector, which includes tax cuts and VAT exemption • Fostering infrastructure development, through accelerated (a) tendering process, (b) disbursement of budget, (c) implementation of projects funded by external debt In 2009 budget, Government allocates some $.6.3 billion, or 1.4% of Indonesia’s GDP, to stimulate the real sector

11. Structural Reforms 2008-2009 • Focusing on the following areas: • Investment climate; • Macroeconomic and financial policy; • Energy security; • Natural resources, • Environment and agriculture; • Micro, small and medium enterprise; • ASEAN Economic Community commitments; • Infrastructure and Labor and transmigration.

12. Policy Recommendations • With current global economic situation where major developed countries are entering a steep and possibly prolonged downturn, and even the dynamic, emerging economies of Asia, connected through export and financial links with developed markets, are likely to slow significantly, government should be committed in doing the economic and structural reforms to maintain the achievement of stable and sustainable economy. • Policy making policy should considered both external and internal factors, i.e. the ups and downs of the global economy, the impact of decentralization and democratization, and natural disasters.