Indonesia economic analysis Essay
Executive Summary The following report details our research and results regarding the economic climate of the Republic of Indonesia. Following our recent cultural analysis, we followed the similar practice of finding several sources, extracting the most vital information, and summarizing our findings into a coherent analysis. Ultimately, we feel that this analysis will provide a comprehensive look into Indonesian current economic condition, as well as provide insight in the future and direction of the country’s economy. This report will contain an abundance of information regarding the Indonesian economy.
More specifically, this report will detail topics such as population, GAP, distribution of wealth, natural resources, principal industries, and several others. Indonesia is a growing global economy. Home to the fourth largest population in the world, Indonesia is a densely populated country. With a large labor force, (42. 2 percent of people are 25-54 years old) Indonesia has a plentiful amount of human resources to be able to capitalize on future opportunities. In addition to the abundant labor pool, a moderately high birth rate and lower death rate are attributing to a continuously growing population.
In 2012, Indonesia reported GAP of $1. 237 trillion USED, and anticipates that that number will grow on average
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The average household income in Indonesia falls between $2,100 to $3,000 USED annually. Indonesian natural resources have been a catalyst to recent economic growth. The nation has a wealth of petroleum, coal, precious metals, and other minerals. Drilling for oil and the recent increase in mining have boosted the economic output of Indonesia. Indonesia also has a large timber and logging industry. The two largest industry sectors in Indonesia, however, are agricultural and services. 87. 2 percent of the labor force belongs to one of these two sectors. Indonesia has a promising economic future.
A growing population, wealth of resources, and fiscally responsible practices are producing welcomed results for the nation. As Indonesia continues to produce and exploit these competitive advantages, we expect to see their economy continue to grow at an above-average rate. As their economy gets larger, we also expect to see an increase in average wealth among the population, as well as an evolving wealth distribution. We believe Indonesia to be an attractive market, and expect that expansion to continue to attract foreign investment and modernization. Introduction Indonesia economic analysis
By Storage Republic of Indonesia. Through our research, we have compiled, summarized, and presented information that is vital to understanding the current and future outlook for Indonesian economy. The following sections provide insight to critical areas, leading up to our outlook and predictions for the expanding nation. Population By area, Indonesia is the world’s fifteenth largest country in the world. Despite the limited space, Indonesia boasts the world’s fourth largest population after China, India and the United States – and the population keeps growing.
Official 2010 census exults published the Indonesian population figure at over 237 million people. However, in 2013, the UN released their mid-year population estimates, publishing a population for Indonesia of 247 million people. That growth equates too population increase of more than 4 percent in three years. Jakarta, the capitol city of Indonesia, reported a population of nearly 9. 5 million in the 2010 census and now numbers over 10 million. Jakarta is an extremely densely populated city, with 10 million inhabitants within the city area of approximately 255 square miles.
Population density for the capitol city is estimated to be 39,000 people ere square mile. We can compare that to New York City, which has a population density of about 28,000 people per square mile. Indonesian population growth can be attributed too number of factors. Since the sass, Indonesia has enacted a family planning program that slowed the birth rate considerably, making the population more manageable for the Indonesian infrastructures. A moderate birth rate of about 17 births per 1000 people and a death rate of roughly 7. 2 per 1000 people are contributing to the regulating of Indonesian population growth.
Of the population in Indonesia, 42. Percent of inhabitants find themselves within the ages of 25-54 years old, making for a vast labor pool within the country. Also, the male-female ratio in Indonesia is nearly 1:1 . From a cultural perspective, the population can be divided amongst the following ethnic groups: Javanese 40. 6 percent, Sundaes 1 5 percent, Matures 3. 3 percent, Unimaginable 2. 7 percent, Beta 2. 4 percent, Bug’s 2. 4 percent, Banter 2 percent, Banana 1. 7 percent, and other or unspecified at 29. 9 percent. Religiously, the population claims the following religions: Muslim 86. 1 percent, Protestant 5. Recent, Roman Catholic 3 percent, Hindu 1. 8 percent, and other or unspecified at 3. 4 percent. This distribution makes Indonesia the world’s largest predominantly Muslin country, and as such it is often called a “Muslim State”. While there is a lot of ethnic diversity, the largest portion of Indonesian are Javanese the sheer size of the population, as well as the majority of the population pertaining to the abundant labor pool. GAP Indonesian economy collapsed in 1999, and from ’99 to ’04, Indonesia worked to turn around an ailing economy, and as a result, has grown their economy to become a rage and robust player in the global economy.
Indonesian commitment to fiscally responsible and conservative practices over the past several years has led to impressive economic growth. In 2012, Indonesia reported Gross Domestic Product of $1. 237 trillion USED, making Indonesia the sixteenth largest economy in the world and growing about 6. 2 percent from 2011. What we found to be most impressive is the recent growth of Indonesia in spite of the global economic crises. It is worth noting that in 2009, when nearly every global economy reported a decline in GAP, Indonesia Joined China and India as the only embers of the 620 that experienced economic expansion.
As a result of the impressive performance, Fitch and Moody upgraded Indonesian credit rating to “Investment Grade” in late 2011. Forecasts for the next five years are predicted a 5. 8 – 6. 2 percent annual growth to GAP through 2018. This forecast is more optimistic than for any other emerging market in the world. Debt As mentioned previously, Indonesia has proactively pursued fiscally conservative practices and economic reform over the past several years. As a result, public debt in Indonesia is approximately 23 percent of GAP.
The debt-to-GAP ratio is a good indicator of the overall health of a particular economy, and the lower the number the better. As a comparison, the public debt as a portion of GAP in the U. S. Is 100 percent. The budget deficit for the Indonesian government is about 1. 9 percent (reported in 2012). Indonesian public debt as a percentage of GAP has been steadily declining since 2004 Total external debt for Indonesia was reported to be $190. 7 billion at the end of 2011, figuring to account for nearly 67 percent of total national debt. Japan is the leading capabilities, natural resources, and extensive labor pool available.
Inflation Indonesian inflation rates are at a historic low for the country. In 2012, the Indonesian inflation rate was measured to be about 4. 3 percent, down from 5. 4 percent in 2011. Most other emerging markets are in the 5- 6 percent range. Continuing efforts to stabilize their economy will help Indonesia to continue to reduce inflation, and such inflation reduction will help fuel the country’s growth and stabilization in the coming years. Average Family Income As classified by the World Bank, Indonesia is a “lower middle-income” country. The World Bank defines “lower-middle income” countries as those with a Gross National
Income (IN) per capita of $1 ,036 USED to $4,085 USED. Due to the lack of a more robust tax and reporting system, it is estimated that the average household income in Indonesia is somewhere between $2,100 USED and $3,000 USED. Like many growing countries, Indonesian middle-income families have increased their wealth more quickly than any other income class. While difficult to measure precisely, there are many reports which suggest that some 61 percent of Indonesian are middle-income families. Over the past several years the average household income has been on the rise; and most of this rise has been driven by a growth in the idle-class.
This growth in the middle-class has come from Indonesian governmental efforts to reduce poverty. The amount of people living in poverty – defined as living on less than $1 USED per day – declined over 3 percent between 2010 and 2011, resulting in a growing middle-class demographic. This growth has come because of an influx of jobs, which in turn creates a higher average family income within the middle-class. Something to keep in mind as one analyzes the household Indonesian income is that living conditions are relative to the situation.
About 61 percent of the Indonesian population is considered middle-class in terms of Indonesian incomes and prices. It is obvious to note that virtually all of the Indonesian population would be far below the poverty line if one were to compare them to the U. S. Standards. Distribution of wealth quarter of one percent of the world’s wealth. By the end of 2012, that number had tripled to three-quarters of one percent of the overall world wealth. This increase was one of the biggest Jumps made by any country during that time span.
As mentioned above, the middle-class has been the largest growing income class in the entry, and despite such growth, there has been very little noticeable shift in the distribution of wealth amongst the population. This lack of shift signals that the entire nation is gaining wealth, as opposed to Just the rich gaining wealth. Indonesia is labeled as a lower middle-income country, and as such 82 percent of adults in country have a net wealth of less than $10,000 USED. 98. 7 percent of the country has a net wealth of less than $100,000 USED (in contrast, 65 percent of Americans have a net worth of less than $100,000).
When trying to understand the striation of wealth, most economists believe that it is most accurate to compare Indonesia to India. Notably, 99 percent of the India population has a net worth less than $100,000 USED. In analyzing Indonesian distribution of wealth, it is easy to understand that the country is in an optimistic situation. Its wealth distribution is similar to many other emerging markets in that a large percentage of the country is poor or low income. Having so much of the population hold so much of the wealth shows us that Indonesian as a whole have the opportunity to collectively increase their wealth.
The striation of wealth in Indonesia is far better than that of undeveloped countries, where the population is drastically polarize (some situations show a division of 95 percent extremely poor and 5 percent extremely rich). Indonesian current distribution of wealth will enable the country to continue to collectively gain wealth. Minerals and Resources As with most other emerging markets, Indonesian growth potential may lie within its ability to capture, extract, and exploit its abundance of natural resources; and Indonesia certainly has an abundance of natural resources.
Many experts regard Indonesia as a “mineral-rich country’, an accurate description considering the vast amount of minerals, metals, and energy sources found there. The most abundant resources include coal, gold, silver, copper, nickel, iron, aluminum, bauxite, natural gas, petroleum, and timber. As noted above, the growth of many developing countries is based in large part upon their ability to effectively deal with their natural resources. However, compared to most other similarly emerging markets, Indonesia has a distinct competitive advantage because of these resources.
One of the biggest reasons the economy has urged in recent years is the fact Indonesia has been able to use these natural resources to fuel that growth. Country currently sits atop of 1 percent of the world’s oil reserves. Drilling and exploration are beginning to become stronger points of the Indonesian economy. This drive to drill more oil has led to a demand for more specialized Jobs and thus helped to fuel a part of the economic growth in the country. Another bright side in this for Indonesia is that the country has been able to fuel a significant amount of its growth from within by avoiding the costly need to import foreign oil.
Indonesia also has vast and significant mining operations scattered throughout the islands. These operations make the exportation of commodities a large part of the economy of the country. It is estimated that less than 1 percent of the landmass of Indonesia is occupied by mining projects, and many scientists think that there are enormous under-water deposits which have not been tapped into and which may not need to be explored for another decade. But when these deposits are explored, it could bring an enormous economic boom to the country. However, in all this growth there is a cautionary tale to be told.
The timber and logging industry in Indonesia has wreaked havoc upon the landscape, ecosystem, and population. Estimates say that nearly one-third of the landmass of the country has already been logged or marked to be logged in the near future. All of this serves to make Indonesia much more susceptible to land- and mud-slides, as well as a decreasing number of wildlife species for which the country is so well known. Transportation Infrastructure As with any rapidly developing country, Indonesia is burdened with the problem of a moderately under-developed and antiquated transportation infrastructure.
Fortunately, rural Indonesia has been the beneficiary of recent projects sponsored by the World Bank which have served to help update and extend this infrastructure. A majority of the projects sponsored by the World Bank have centered on trying to increase the quantity and quality of the roads in much of rural Indonesia. The World Bank – based on its own standards – have rated these projects as successes, saying that the new roads and infrastructure have helped to better the lives of those who will use them.
Indonesian urban transportation infrastructure is becoming victim to the country’s growth. Rapid growth in areas like Jakarta over the past twenty years has brought with it a tsunami of motor vehicles. Car ownership is sharply increasing, as is motorcycle use, and as a result, severe congestion is occurring. The government is working quickly to solve the problem by encouraging the use of public transportation and walking. The growth potential in cities such as Jakarta, Curably, Banding, and Basis may be problems.
Communication Infrastructure The communication sector has been growing at a fast pace within the past few years. This growth has allowed many Indonesian to have access to telecommunications. Many investments have been made in the sector, making lower rates and tariffs possible. The mobile market, as we would expect nowadays, has been growing at a faster pace than traditional landlines and is now substituting for fixed landlines. Communication advancements in Indonesia are increasing the industry revenues due to the speed of information and accessibility.
Although progress is a reality, it is not spread evenly across the country. Particularly in Eastern Indonesia, access to quality service is not provided or is more expensive. Dial-up internet is still the tankard for the Eastern population, and because the geography of the archipelago makes it difficult for land communications to be developed, mobile seems to be the more suitable technology. Some statistics show that while mobile phones are accessible for most of the people across Indonesia, internet access is not following that same pace.
The World Bank believes that only 15 of every 100 people are users of internet services. Such fact also shows that internet at home is not available for many, and most of the access occurs in public places (schools, work, or specialized stores). Principal Industries The labor force in Indonesia is mostly dedicated to services and agriculture. A combined 87. 2 percent of the labor force belongs to those two sectors; the balance belongs to the manufacturing sector – which consists of the manufacturing of goods, as well as mining, and construction.
The service sector of an economy is primarily focused upon the production of intangible goods, such as back room technical support, customer service, or financial and economic research. Most experts suggest that the services and manufacturing sectors will see the most growth in the coming ears. When revenues and profit are considered, the picture turns around and the manufacturing sector is the most appealing, representing 46. 9 percent of the total GAP. Agriculture and services represent 14. 3 percent and 38. Percent respectively. All those numbers show that Indonesia has a well-balanced economy, and this balance allowed the 2008 crises to have smaller effects on the country’s economy. Within those sectors of the economy, mining, textile and apparel creation, and tourism are all booming and will prove to be extremely influential in the sustaining Indonesian current growth. Indonesia has seen a downward trend in its balance of trade. Meaning, the country had been importing more than it is exporting.
Currently, the government is putting a lot of effort into changing that trend by slowing the economy, the result of such efforts are showing as exports are now exceeding imports and the balance shows a surplus. The government believes that by making this move they will be able to control their currency and increase its value. The trade of oil and some other commodities has helped Indonesia to keep a historical record of surplus. Lately Indonesia has been importing more oil and commodities such that its exports have dropped in price.
In the following graph, having a balance of trade > 1 signals that exports exceed imports. Conversely, a balance of trade < 1 means that imports exceed exports. Over the past two years, Indonesia has gone from having net exports, to having net imports, to now being virtually net nuetral, which as mentioned has been an active move by the government. Currently, Indonesia's imports are virtually equal to exports Exchange Rate The countrys currency is the Indonesian Rupiah (IDR). In 2013 the currency has shown bad performance and is 2013's worst performing Asian currency.
Indonesian Central Bank has spent $20 billion on foreign currencies in efforts of raising the price of the Rapier. Inflation also plays a big role in the currency situation. In 2014 Indonesia is planning on removing three zeros and re-denominating the currency. This won’t affect inflation or the economy, but will simplify payments and facilitate transactions. The process will take place from 2014 until 2016. 2013 has seen the Rapier steadily weaken against the USED Labor Force and Labor Costs As mentioned previously, a majority of the Indonesian population is considered in the labor force.
As a result, the labor force in Indonesia is the 5th largest in the world at 118. 1 million. Just larger than Indonesia is the U. S. With 155 million and China with 22. 2 percent in manufacturing, and 47. 9 percent in services compared to China’s 34. 8 percent, 29. 5 percent, and 35. 7 percent in agriculture, manufacturing, and services respectively. The structure of the labor force in Indonesia is a mix of gender and education. Females make up 38 percent of the total labor force and half of that 38 percent have remarry education while 19 percent have secondary education.
Of the male labor force 54. 6 percent have primary education and 24. 3 percent have secondary education. As the nation works to become more industrialized, education will play a higher role in society and higher percentages of the labor force will obtain a secondary education. Women will also become a more prominent factor in the work place, therefore requiring more education. The base salary in Indonesia is among the lowest in Asia. The minimum wage is set by the local government in each province, and has actually increased by over 18 Recent in 2013.
The highest minimum wage is found in the Jakarta province and is 22 million rapier or about $1,900 USED per year. Almost 12 percent of the population is below the poverty line – living on less than one dollar per day – compared to less than one percent in the U. S. And China’s 13. 4 percent. Unemployment Rate As of 2012 the unemployment rate in Indonesia was 6. 1 percent. The country was ranked with the 62nd lowest unemployment rate in the world out of the 202 nations ranked. Thailand has the 4th lowest unemployment rate at 0. 7 percent, the United States ranks 95th with a rate of 8. Percent, and Zanzibar 22nd with 95 percent unemployment. During the first quarter of 2013 Indonesian unemployment rate was slightly lower at 5. 92 percent. 2014 forecasts show that the unemployment rate may fall to 5. 1 percent if global and domestic conditions continue to improve. One interesting statistic about Indonesian unemployment rate is that it is highest among workers ages 15-24. The overall trend of the unemployment rate has risen steadily from 2. 1 percent in 1985 to a high of 1 1. 2 percent in 2005 followed by a gradual decrease to . 1 percent in 2012.
Solid economic performance over the previous 8 years has helped to lower unemployment Similar to other developing countries Indonesia does not have a strong history in science and technology. President Silo Bambina Hoyden has decided to allocate almost $205 million on research and technology because as he said, “We need technology that can empower the poor. ” Although the amount invested in science and technology is small, it is double what the government allocated in 2005. Indonesian greatest influence and success has come in aerospace and transportation genealogy.
Indonesia is known for developing and building its own aircraft and is the only country in Southeast Asia to have accomplished this. The country also manufactures components for aerospace giants Boeing and Airbus. Conclusion Indonesia is home to one of the strongest economies in Southeast Asia. It has shown great progress in many areas of the economy recently and is in a great position to sustain this growth. Even during the global economic crisis, Indonesia maintained a healthy and expanding economy. This very populous country also shows some progress in the infrastructure area.
It is still behind in some developments, especially in the transportation and communication services, but it is investing in projects to improve quality and accessibility. Another important fact about the country’s economy is the distribution of wealth that matches that of other emerging countries. Indonesia has a labor force that is growing in size and education levels. As the country continues to make significant advances, it will continue to grow. Indonesia has placed itself in a wonderful position to continue to flourish and grow in the world marketplace over the coming decades.