Reportage | Indonesia

Indonesia: An archipelago of opportunities

Economic Scenario by Marco Cossu

An economy that is developing, but with difficulty

In the growth estimates of the international agencies, prospects for the Indonesian economy bode well. There are still, however, serious difficulties due to the geographical configuration of the country, divided into a myriad of islands. Infrastructures, networks, unemployment and an inefficient judicial system are some of the main causes of the difficulties.

 

Having averted the risk of bankruptcy during the Asian financial crisis at the end of the Nineties, Indonesia was capable of stabilizing its economic system mirroring the progress of the most promising economies of the South-East Asian area. The country dealt successfully with the 2008 global economic crisis, gaining recognition from international agencies, and managing to significantly improve its credit rating. The government was also on top of the situation limiting the deficit and controlling the rise in inflation. Currently, the Indonesian economy remains closely linked to the primary sector: agriculture, forestry and fishing are the country's major production sectors. Since the 2000's Indonesia has been the protagonist of constant growth, managing to achieve a 6% increase in GDP, while between 2015 and 2016 the growth rate stood at between 4.8 percent and 4.9 percent. The development of the country has, however, slowed down: the collapse in demand from the more advanced economies of the world has caused a fall in exports of raw materials. In spite of this fall, Indonesia has managed to outperform its closest neighbours aligning with the growth trends of China and India.

An increasingly important global role

Growth rates should have exceeded 5 percent according to the International Monetary Fund (IMF), however, in recent years they have stood just below this figure. Observing the growth in GDP before the Asian crisis, which stood between 8 and 9 percent and comparing it to current trends, it is possible to observe how the country is heading towards more sustainable and harmonious growth than in the past. There are still, however, critical areas: economic growth boosted by low salaries has, on the one side, reduced unemployment levels, but, on the other side, by increasing the gap between the rich and the poor, has exacerbated social conflicts, which risks making latent religious and ethnic rivalries worse. Indonesia has managed, over the course of the years, to carve out an important role for itself in the global economy. The founder of the ASEAN (Association of South East Asian Nations) together with the Philippines, Thailand, Malaysia and Singapore, it also became a member of the G20. The country concentrated its efforts on strengthening its integration in the regional and global market, increasing trade within South-East Asia and with the rest of the world. In recent years growth in domestic demand has driven the trade balance in favor of exports, relieving the country from the burden of foreign dependence. As far as exports in Asia are concerned, Indonesia's main commercial partner is Japan, followed by China. Beyond the continent, the United States is the main non-Asian target market. As far as imports are concerned, Singapore, China and Japan have the closest ties with the Indonesian archipelago.

Focusing on infrastructures

In spite of the macro economic situation being encouraging, Indonesian fortunes are founded on various contradictory elements. The battle against poverty and unemployment still remain a priority for the country, an aspect which clashes, if considered together with the high levels of corruption in the system. The inadequacy of the infrastructures means it is not possible to support trade and demographic booms: the lack of facilities at the ports restricts cargo ships re-routing towards the main hub of the region, Singapore. The risk of blackouts is par for the course, given the difficulties of the energy infrastructures in meeting domestic demand. The railway and telecommunication networks are also inadequate and do not manage to cover the entire archipelago. A complex and fragmented regulatory framework contributes to the inefficiency of the judicial system, often incapable of resolving disputes. Added to this is a distribution of resources between the regions that is often unequal, which contributes to fuelling tensions of an ethnic and religious nature. A predominantly agricultural and mining country, Indonesia is highly dependent on the performance of the commodity markets, and will need to stabilize its own industrial sector in the future. In order to maintain its competitiveness and modernize production processes, the archipelagic state is continuously searching for know-how and cutting-edge technological tools, elements that will make the country the main focus of foreign investors. The economic successes of recent years, the constant demographic growth (calculations show that the country will go from 251 to 273 million inhabitants by 2020), the move to urbanization and the consequent rise in domestic demand compel Indonesia to reconcile its development with safeguarding the environment. Every year 1.6 million hectares of forestry resources risk being compromised by fires, often started deliberately to make the land fertile or to make space for urbanization. The excessive exploitation of resources, often through unlawful means, threatens an ecosystem that is as rich as it is fragile, exposing the archipelago to the same problems as rapidly developing countries. In recent years, however, awareness of the natural heritage of the region has increased and the government has made an international commitment to increasing its control and extending protected areas.