Indonesian Economy Growth

Indonesia is the largest economy in Southeast Asia with a nominal GDP of $1.066 billion in 2018. It is ranked as the 16th highest GDP in the world, with a 5.1% growth rate last year. In the past three decades, the average growth rate of Indonesia’s economy stands at 5.3%. The IMF predicts that the Indonesian economy will slowly hike over the next five years, to reach $1.446 billion of GDP by 2023.

Indonesia economy: real GDP growth

Indonesia economy: GDP current prices

Indonesia’s per capita GDP has almost quintupled in less than 30 years, from $770 in 1990 to $3,789 in 2018.

Indonesia economy: GDP per capita

As an emerging market, the archipelago is classified as a newly industrialised country. The Indonesian economy still depends on its domestic market, with around 56% of economic growth coming from domestic consumption.

Indonesia Economy Growth: Large Labour Force Sustaining Growth

With a population of over 265 million in 2018, Indonesia is the fourth most-populated country in the world. The population growth rate is stable at just over 1%. More than half of the population live on the island of Java.

Indonesia economy: population

With half of the total population under the age of 30, the country boasts an enormous labour force. Around two million more Indonesians enter the labour force every year.

The amount of informal employment in Indonesia is estimated at between 55 and 65%. Meanwhile, around 5.2% of Indonesians were jobless last year. The IMF expects Indonesia’s unemployment rate to remain at 5% for the next half-decade.

Currency and central bank

The official currency of Indonesia is the rupiah. Indonesians also refer to the money as perak, which means silver in Indonesian. It has a free-floating exchange rate system.

The rupiah is issued and controlled by the country’s central bank, Bank Indonesia. Bank Indonesia’s primary objective is to maintain monetary and financial sustainability and an effective payment system. It uses various instruments to operate monetary objectives, including open market operations, setting the discount rate, prescribing a minimum reserve requirement, and regulating credit or financing.

Indonesia Targeting Stable Inflation

To control inflation, Bank Indonesia began adoption of an inflation targeting framework in 2005. The rate of inflation in Indonesia last year reached 3.6%. The bank has set an inflation target of between 3 to 3.5% for the period of 2019 to 2021, with a 1% deviation.

Indonesia economy: inflation rate

Industry and trade

Indonesia’s economy is mainly driven by the services, agriculture, and industry sectors. Agriculture contributes to one-third of Indonesia’s total GDP and employs around 41% of the total work force. The country’s primary agricultural commodities include rice, rubber, cocoa, coffee, tobacco and palm oil. The country is the world’s largest producer and consumer of palm oil, providing about half of the world’s supply. In 2018, the production of palm oil in Indonesia reached 42 million tonnes.

Besides palm oil, major industries in Indonesia include coal, petroleum and natural gas, tobacco, textiles, automotive, mining, plywood, rubber, and tourism. Among its largest companies are state-owned oil company Pertamina, communication enterprise Telekomunikasi Indonesia, and private bank Bank Central Asia.

Indonesia Economy: Trade and Competitiveness

In 2018, Indonesia’s trade balance recorded a deficit of $8.6 billion, down from an $11.84 billion trade surplus the previous year. Imports jumped over 20% to $188.6 billion, while Indonesian exports rose 6.65% to $180 billion.

The country’s top five export and import partners are China, the U.S., Japan, the European Union, and Singapore.

Indonesia economy: current account balance

Indonesia recorded inflows of $28.1 billion FDI in 2018. The main recipients of FDI were the mining sector, machinery and electronics, electricity, gas and water supply, and the chemical and pharmaceutical industry. The biggest chunk of investment came from other Asian countries, mainly Singapore, China and Japan.

According to the Global Competitiveness Report published by the World Economic Forum, Indonesia is ranked the 73rd most competitive nation in the world. The current administration is taking measures to ease regulations on foreign direct investments in order to stimulate the economy.

Stock exchanges and capital markets

Bursa Efek Indonesia is the Indonesian stock exchange based in Jakarta. It was previously known as the Jakarta Stock Exchange (JSX) before merging with the Surabaya Stock Exchange (SSX) in 2007. By the end of 2018, Bursa Efek Indonesia has listed 625 companies with a total market cap of $518 billion in March of 2019.

Based on data from the Indonesian stock exchange, around 40% of transactions in the stock market are dominated by foreign investors. The exchange trading volume averages over 440,000 transactions daily.

The most important index is the IDX Composite which measures the performance of all stocks listed on the Indonesia Stock Exchange.

Indonesia: Investment Limitation

Foreigners can be major shareholders in Indonesian companies, except in certain sectors such as arms manufacturing, alcoholic drinks, concessions for exploiting natural forests, woodcutting companies, and radio and television broadcasting.