The largest economy in Southeast Asia, Indonesia – a diverse archipelago nation of more than 300 ethnic groups -- has charted impressive economic growth since overcoming the Asian financial crisis of the late 1990s. The country’s gross national income per capita has steadily risen, from $560 in the year 2000 to $3,630 in 2014. Today, Indonesia is the world’s fourth most populous nation, the world’s 10th largest economy in terms of purchasing power parity, and a member of the G-20. It has made enormous gains in poverty reduction, cutting the poverty rate to more than half since 1999, to 11.2% in 2015.
Indonesia’s economic planning follows a 20-year development plan, spanning from 2005 to 2025. It is segmented into 5-year medium-term plans, called the RPJMN, each with different development priorities. The current medium-term development plan – the third phase of the long-term plan -- runs from 2015 to 2020, focusing, among others, on infrastructure development and improving social assistance programs in education and healthcare. Such shifts in public spending has been enabled by a reform of long-standing energy subsidies, allowing for more investments in programs that directly impact the poor and near-poor, as well as vast improvements in infrastructure investment.
Considerable challenges remain in achieving Indonesia’s goals.
Due to weaker demand for commodities – the fuel for Indonesia’s economic boom in the past decade – Indonesia’s GDP growth has been slowing since 2012. The pace of growth in fixed investment, exports, and consumption, has slowed – and these developments have impacted the rate of poverty reduction.
The poverty rate declined by 1% annually from 2007 to 2011, but has fallen by an average of only 0.3 percentage points per year since 2012. Out of a population of 252 million, 28.6 million Indonesians still live below the poverty line and approximately 40% of all people remain clustered around the national poverty line set at 330,776 rupiah per person per month ($22.60).
The slowdown has also impacted job creation, with employment growth slower than population growth. Public services remain inadequate by middle income standards, and this has led to alarming indicators in health and education.
For example, the maternal mortality rate in Indonesia is 126 maternal deaths per 100,000 live births, higher than the Millennium Development Goal of 102 maternal deaths per 100,000 live births. Some 37% of children under the age of 5 suffer from stunting, or short height, which reflects stunted brain development, affecting the children’s future opportunities.
And despite recent progress, access to hygienic toilet facilities currently stands at 68% of the population, significantly short of the MDG target of 86%.
The investment climate, though generally positive, faces continued regulatory uncertainties and high logistics costs. However, a series of reform packages shows that the government wants to convince investors that Indonesia is open for business. The packages include a reduction of the Negative Investment List, a list of some 600 sectors that represent about 70% of the economy. The government has pledged further reforms.
Last Updated: Apr 05, 2016