Indonesia: Economic and Political Outline

Economic Overview

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 Sectors 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.

Source: World Bank - Last Available Data.

Indicator of Economic Freedom

Score:

56.0/100

Position:

Mostly unfree

World Rank:

112/179

Regional Rank:

21/38

Distribution of Economic freedom in the world
Source: 2011 Index of Economic freedom, Heritage Foundation

Note: The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labor freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of Industry
Ministry of Commerce

Statistical Office

Statistical Office

Central Bank

Central Bank of Indonesia

Stock Exchange

Jakarta Stock Exchange

Main Online Newspapers

Bali Post
Bisnis Indonesia (in Indonesian)
Republika (in Indonesian)
Tempo
Kompas (in Indonesian)
The Jakarta Post

Economic Portals

Economic, commercial and sectoral information about Indonesia and Asia in general

Political Outline

Type of State

Unitary Republic  made up of 440 administrative districts, based on parliamentary democracy with a Presidential form of government.

Executive Power

The President is both the head of the State and the head of the government. The President enjoys the executive powers and appoints the cabinet. Both the President and the Vice-President are elected through direct universal suffrage for five-year terms. The President is the commander-in-chief of the armed forces and responsible for domestic governance and policy-making and foreign affairs.

Legislative Power

The legislature in Indonesia is bicameral. The parliament called People's Consultative Assembly (MPR) consists of: DPR (House of People’s Representatives – lower house) having 550 seats with its members elected directly to serve five-year terms, and DPD (House of Regional Representatives- upper house) having 128 seats with each province electing 4 members on a non-party basis. The President cannot dissolve the parliament but the President has the power to veto bills, and in turn a supermajority of legislators may act to override the veto.The people of Indonesia have limited political rights.

Main Political Parties

Indonesia has a multi-party system where a single party does not often have a chance of gaining power alone. Thus parties need to work together to form coalition governments. The major political parties in Indonesia are:
- PD (Democratic Party) - advocates ‘Pancasila’ – the 5 principles the Constitution is based on;
- Golkar (Functional Groups Party) – initially an alliance of NGOs opposing communism, now advocates democratic and liberal values;
- PBB (Crescent Moon and Star Party) – a moderate Islamist party;
- PDI-P (Indonesian Party for the Democratic Fight) – based on ‘Pancasila’ ideology, a split-away group from the PD led by ex-President Megawati Sukarnoputri.

Current Political Leaders

President: Susilo Bambang YUDHOYONO (since October 2004) - PD
Vice-President: Muhammad Yusuf KALLA (since October 2004) - Golkar

Next Election Dates

Presidential: July 2014

Indicator of Freedom of the Press

World Rank:

146/179

Evolution:

29 places down compared to 2010

Source: Worldwide Press Freedom Index 2011, Reporters Without Borders

Note: The world rankings, published annually, measures the violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position is assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire sent to partner organizations,150 RWB correspondents, journalists, researchers, jurists and activists of human rights, including the main criteria - 44 in total - to assess the situation of press freedom in a given country. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).