ECONOMY OF INDONESIA

Indonesia has the largest economy in Southeast Asia and is one of the emerging market economies of the world. The country is also a member of G-20 major economies and classified as a newly industrialized country. It has a market economy in which the government plays a significant role through ownership of state-owned enterprises (the central government owns 141 enterprises) and the administration of prices of a range of basic goods including fuel, rice, and electricity. In the aftermath of the financial and economic crisis that began in mid-1997 the government took custody of a significant portion of private sector assets through acquisition of nonperforming bank loans and corporate assets through the debt restructuring process. Since 1999 the economy has recovered and growth has accelerated to over 4%-6% in recent years.

Indonesia regained its investment grade rating from Fitch Rating in late 2011, and from Moody's Rating in early 2012, after losing its investment grade rating in December 1997 at the onset of the Asian financial crisis which Indonesia spent more than Rp450 trillion ($50 billion) to bail out lenders from banks. Fitch raised Indonesia's long-term and local currency debt rating to BBB- from BB+ with both ratings is stable. Fitch also predicted that economy will grow at least 6.0% on average per year through 2013, despite a less conducive global economic climate. Moody’s raised Indonesia's foreign and local currency bond ratings to Baa3 from Ba1 with a stable outlook. In the year 2012, Indonesia edged out India to emerge as second fastest G-20 major economy just behind China.

Economic challenges

It was only until changes in government in 1965 that triggered off essential progress in lowering the country’s poverty rate. From a steep recession in 1965 with an 8% decline in GDP, the country began to develop economically in the 1970s, earning much benefit from the oil shock. This development continued throughout the 1980s and into the 1990s despite the oil counter-shocks. During these periods, GDP level rose at an average rate of 7.1%. Indonesia saw consistent growth, with the official poverty rate falling from 60% to 15%.[59] Despite this development, an estimated 13.33% of the population (2010 estimate) remains below the poverty line.

Labor unrest

As of 2011 labor militancy was increasing in Indonesia with a major strike at the Grasberg mine and numerous strikes elsewhere. A common issue was attempts by foreign-owned enterprises to evade Indonesia's strict labor laws by calling their employees contract workers. The New York Times expressed concern that Indonesia's cheap labor advantage might be lost. However, a large pool of unemployed who will accept substandard wages and conditions remains available. One factor in the increase of militancy is increased awareness via the internet of prevailing wages in other countries and the generous profits foreign companies are making in Indonesia.

Inequality

Economic disparity and the flow of natural resource profits to Jakarta has led to discontent and even contributed to separatist movements in areas such as Aceh and Irian Jaya. Geographically, the poorest fifth regions account for just 8% of consumption, while the richest fifth account for 45%. While there are new laws on decentralization that may address the problem of uneven growth and satisfaction partially, there are many hindrances in putting this new policy into practice.

At the Indonesian Chamber of Commerce and Industry (Kadin) meeting at Makassar on April 2011, Disadvantaged Regions Minister said there are 184 regencies classified as disadvantaged areas in Indonesia with around 120 regencies were located in the eastern part of Indonesia.

Inflation

Inflation has long been another problem in Indonesia. Because of political turmoil, the country had once suffered hyperinflation, with 1,000% annual inflation between 1964 and 1967, and this had been enough to create severe poverty and hunger. Even though the economy recovered very quickly during the first decade of New Order administration (1970–1981), never once was the inflation less than 10% annually. The inflation slowed during mid-1980s, however, the economy was also languid due to the decrease of oil price that reduced its export revenue dramatically. The economy was again experiencing rapid growth between 1989-1997 due to the improving export-oriented manufacturing sector, still the inflation rate was higher than economic growth, and this caused widening gap among several Indonesians. The inflation peaked in 1998 during the Asian financial crisis, with over 58%, causing the raise in poverty level as bad as the 1960s crisis. During the economic recovery and growth in recent years, the government has been trying to decline the inflation rate. However, it seems that Indonesian inflation has been affected by the global fluctuation and domestic market competition. As of 2010, the inflation rate was approximately 7%, when its economic growth was 6%. To date, inflation is affecting Indonesian lower middle class, especially those who can't afford food after price hikes.

Comment :

The quality of economic growth in Indonesia is still low. Economic growth in Indonesia is quite high, but the effect is too low society. Each one per cent of Indonesia's economic growth absorbs only 250 thousand new workers. This causes the high level of unemployment.