Economic trends
The Indonesian economy has emerged from the global financial crisis relatively unscathed. It proved to be more resistant than the neighboring economies due to the low share of exports in the economy as a whole and the importance of private consumption since the country has a large domestic market. A stimulus package is tax cuts, increases in subsidies and additional expenditure commitments, was also used to cushion the effects of the crisis.The country adopted a stimulus plan which lowered taxes, increased subsidies and commitments for supplemental expenditures, which have allowed to soften the effects of the crisis. The growth has accelerated in 2011, estimated at 6.4% of the GDP, under the effects of the revival of investments and the continuous growth of private consumption. Due to its political stability, low public debt and dynamic domestic consumption, the rating agency Fitch raised the sovereign debt of Indonesia to the level of "investment grade" in December 2011.
However, the outlook for 2012 seem less favorable. The crisis of the sovereign debt of the eurozone countries, the decline in demand and commodity prices, inflation threatening food products, the volatility of financial markets and the shortage of bank credit are all risk factors of Indonesian growth. The Central Bank of Indonesia was also forced to revise its growth forecast for 2012: 6.3% instead of 6.7%.
Despite the good results from the main economic indicators, structural reforms are required. Priority is given to promoting growth and investment in order to support job creation, as well as monetary stabilization. The government is also planning to modify its policy of subsidies for oil products. A new law on land acquisition has been adopted, aiming to boost investment in infrastructure. Despite the many scandals having undermined its credibility, the government has re-confirmed its commitment to fight against corruption, which is undermining the business climate. In addition, the protection of the environment is a major challenge in Indonesia.
Although it has been decreasing since 2008, the unemployment rate remains high and many workers are in a precarious condition. A large part of the population lives below the poverty line and the gap between the very rich and the very poor does not seem to be diminishing.
Main branches of industry
The agricultural sector contributes to nearly 16% of the country’s GDP and employs nearly 40% of the active population. Indonesia is one of the largest rubber producers in the world. Other major crops are rice, sugar cane, coffee, tea, tobacco, palm oil, coconuts and spices. Indonesia is the only Asian country to be an member of the OPEC to which it assures 5% of its production. However, it is still a net importer of oil. The country has great exploitable timber lands and mainly exports timber.
Industries contribute to around half of the GDP. The industrial sector includes manufacturing of textiles, cement, chemical fertilizers, electronic products, rubber tires, clothing and shoes (most of these are for the American market). Wood processing is also a major activity.
The tertiary sector (financial institutions, transportation and communications) contributes to around a third of the GDP. The banking sector is well-developed. The Islamic bank Syariah has expanded rapidly during these recent years. Tourism is a major source of revenue, however, the sector has suffered from terrorist threats and natural catastrophes.
International trade
Indonesia is a member of the WTO and ASEAN (Association of South-East Asian nations). Indonesia is open to foreign trade, which represented on average almost 50% of the GDP in 2008-2010.
The country shows a positive trade balance, however it has diminished in 2009 under the effect of the global recession and the fall of the price in raw materials; however, it still remained on a surplus due to a small contraction of exports in relation to imports. After beginning to grow again in 2010, exports rose strongly in 2011, supported by the increase in commodity prices and by the demand from developing countries. Likewise, the strong domestic demand has lead to a rise in imports. Due to lower global demand, a decrease in export is expected in 2012.
The three main export partners of Indonesia are Japan, the United States and Southeast Asia. The commodities that are mainly exported are mineral fuels and hydrocarbons, electrical equipment, animal and vegetable fats & oils, nuclear reactors & boilers, and rubber. Its main import partners are Southeast Asia, Japan and China. The commodities that are mainly imported are mineral fuels & oils, nuclear reactors & boilers, iron & steel, electric & electronic equipment, and organic chemicals.
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Last updates: January 2012
