Country Profile Indonesia

Indonesia

ASEAN is the fifth largest economy in the world. The region represents 8% of the world population with a combined Gross Domestic Production (GDP) of USD 3.08trillion in 2020. The ASEAN Economic Community (AEC) - established in 2015 - is crucial hub with more than USD 3.4trillion of global trade transits through the region annually. As a member of ASEAN, Indonesia is the biggest country by economy, size, and the population in the region.  

Indonesia- an archipelagic country with 17,000 islands sprawling across three time zones- has continued to book impressive economic growth since successfully overcoming turmoil such as the Asian Financial Crisis in the late 1990s, 2008 Global Financial Crisis, 2015 European Debt Crisis, US-China trade war, proving its resilience. 

Prior to the pandemic, on average the economy grew around 5-6 percent annually. Indeed, in 2017 Indonesia beat the World Back forecast by 3 years when their Gross Domestic Production (GDP) reached trillion dollars and the economy continues to flourish. Currently, Indonesia is the 16th biggest economy in the world. PriceWaterhouseCooper projected that Indonesia would be the fourth biggest economy by 2050.  

Amid challenging global economic conditions and the pandemic, Indonesia's economy remains to be one of the strongest according to the World Bank. In the latest Global Economic Prospect, the World Bank estimated Indonesia's growth will be at the level of 5.1 percent in 2022 boosted by the rise in commodity prices and accommodative fiscal policy to overcome the pandemic and forecasted to grow at 5.3 % in 2023.  

The country has an abundance of natural resources from oil and gas to gold and nickel reserves, as well as the biggest producer of cinnamon, coconut, and palm oil, second biggest producer of rubber and seafood, third biggest producer of cocoa, and fourth biggest producer of coffee, among others. Commodities still make about 60% of Indonesia’s export, but the industrial sector is making rapid progress.  

The expansion of the industrial sector is one of the strategic goals of the Indonesian government. In 2021, to boost Indonesia's investment trend, the government has implemented policies to speed up licensing processes, special incentives for investors-such as tax holiday, tax allowance and import duty redemptions, ease of access as well as a priority investment list. 

There are seven government priority sectors, namely Automotive, Food and Beverage, Textile and Apparel, Electronic and IT, Chemical, Pharmaceutical, and Medical Devices. To achieve top ten economy by 2030, the government is developing five major manufacturing industries into industrial 4.0, namely food and beverage, textile and apparel, automotive, electronics, and chemicals as those industries have high regional competitiveness and readiness. Additionally, those five industries account for 60% of manufacturing GDP and 65% of manufacturing exports.  

As a major net exporter of several commodities, Indonesia is benefiting from current high global commodity prices and their trading partners’ growth rebound. Indonesia’s export jumped 20% in Q2 2022 year on year while import rose 12.34%. Additionally, Indonesia’s trade-to-GDP is only around 40% and its export to China counts for only 4.5% of its GDP while import from China counts for 4.7% of GDP. It means Indonesia will be more sheltered from any shock in China than the rest of Asia. 

Indonesia’s young population is becoming more westernized and urbanized. McKinsey predicted that in 2030 there would be 135 million people in consuming class with a net annual income of more than USD 3,600 in the country. With increasing purchasing power, the consumption increases not only for the basic needs but also luxury goods and services. These makes private consumption the main drivers of the Indonesia’s growth which account of more than 60% of the GDP.  

Despite the challenging global economy, Indonesia’s outlook remains stable due to huge domestic demand, strong economic fundamentals, prudent macro-economic and fiscal policies.  

Socio-Politics  

The Republic of Indonesia declared its independence on 17 August 1945. Currently, President Joko Widodo, better known as Jokowi, hold the power back by majority of sixteen parties that took part at the last election in 2019 and is expected to step down in 2024 at the end of his second term. 

Now the world third biggest democracy, Indonesia had its first free election in 2004. Since then, Indonesian people can directly elect their political representative, head of their regions, and president. The transition between powers so far remains peaceful.  

The nation considers itself a secular country, which recognizes six official religions (Islam-87.18%, Protestant Christianity-6.96%, Roman-Catholic Christianity-2.90%, Hinduism-1.69%, Buddhism-0.72%, and Confucianism-0.05%). As the biggest Muslim population in the world, Indonesians are moderate, about 90% of them are practicing Sunni Islam.  

Despite home of three hundred ethnic groups and seven hundred languages, Indonesia unites its people by using one language, Bahasa Indonesia, and the national motto of Bhinneka Tunggal Ika (Unity in Diversity). Indonesians are immensely proud of their cultures. Each region has its own unique languages, Indigenous traditions, and culinary. That said, they are open to outside influences in varying degrees, making Indonesia’s culture one of the most fascinating in the world.