Economy
From The Report: Indonesia 2014
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Following a decade of growth at an average rate of 6% per year, Indonesia’s economy faced external and internal challenges in 2013. As the world’s 16th-largest economy in 2012, with a GDP of Rp824trn ($824bn) and a population of 247m citizens, Indonesia has strong fundamentals for long-term growth. While the sharp reversal of foreign portfolio investment (FPI) flows from May 2013 emphasised economic imbalances, authorities are seizing on the sense of crisis as an opportunity for enacting needed structural reforms. Despite relatively high inequality and 115m people living on less than $2 a day, the large domestic consumption engine has insulated Indonesia from volatility in world trade. Since 2010 the services sector has become the major employer and accounted for 39% of GDP as of the second quarter of 2013. The manufacturing industry accounts for 23.8% of GDP, construction for 10.3% and mining for 10.4%. Despite disagreements on the pace of the slowdown, growth remains higher than emerging markets’ average of 4.5% in 2013, and points to the resilience of long-term drivers of economic growth. While policy continuity amid the political transition in 2014 will be an important factor in determining the pace of growth, the authorities will continue to balance the need to support domestic consumption growth with ensuring broader macroeconomic stability and the confidence of global investors.
This chapter contains interviews with Dipo Alam, Cabinet Secretary; Jokowi, Governor of Jakarta; Suryo Sulisto, Chairman, Indonesian Chamber of Commerce and Industry; Jusuf Wanandi, Co-founder and Vice-Chairman, Centre for Strategic and International Studies; Edward Soeryadjaya, Chairman and Founder, Ortus Holdings; Prijono Sugiarto, President Director, Astra International; and Tri Rismaharini, Mayor of Surabaya.

Articles from this Chapter

Overview

Tighten up: The authorities are taking the opportunity to enact structural reforms
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Following a decade of averaging 6% growth per year, Indonesia’s economy faced both external and internal challenges in 2013. The world’s 16th-largest economy with GDP of Rp8242trn ($824bn) in 2012, which is a fourfold increase in a decade, and the fourth-most populated with 247m citizens, Indonesia has strong fundamentals for long-term growth. While the sharp reversal of foreign portfolio investment (FPI) flows from May 2013 emphasised economic imbalances, authorities are seizing on the sense…

Interview

Dipo Alam, Cabinet Secretary: Interview
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Interview:Dipo Alam Following decentralisation, how can long-standing bureaucratic inefficiencies be reduced, and what safeguards might prevent abuse of power? DIPO ALAM: Parliament passed many laws during the Reformasi era, which followed the instability brought on by the 1998-99 Asian financial crisis. GDP per capita fell to just $600 as a result and there was pressure, both internally and from the IMF, to begin decentralising to fill the power vacuum left after Suharto’s rule. Since…

Interview

Joko Widodo, Governor of Jakarta: Interview
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Interview:Joko Widodo How are land acquisition hurdles being addressed to accelerate government infrastructure projects? JOKO WIDODO: The land acquisition process begins with the so-called tax object sale value (NJOP). Problematically, though, 99% of owners do not accept this price for their land. First appraisals are normally rejected, and only about half of landowners accept the second. This being so, land acquisition from those who serially refuse offers can last up to seven years. I go…

Analysis

Shared responsibility: Attracting private investment is central to development plans
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Two years into the Master Plan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI), progress has been spearheaded by government-led projects. Despite incentives and institutions established to attract private investment to public-private partnerships (PPPs), projects have been hindered by challenges in land acquisition and inefficient coordination between different tiers of government. While MP3EI’s future remains uncertain following the 2014 presidential elections, the…

Interview

Suryo Sulisto, Chairman, Indonesian Chamber of Commerce and Industry (KADIN): Interview
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Interview:Suryo Sulisto What sectors look to benefit most as Indonesia transitions from being a resource driven economy to one driven by industry and consumer demand? SURYO SULISTO: I would say that the infrastructure and the agriculture sectors will benefit the most. Infrastructure is something we lack across the board in terms of roads, ports and airports. This must be improved to end logistical inefficiency and increase Indonesia’s ability to compete among ASEAN members. We are still…

Interview

Suryo Sulisto, Chairman, Indonesian Chamber of Commerce and Industry (KADIN): Interview
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Interview:Suryo Sulisto What sectors look to benefit most as Indonesia transitions from being a resource driven economy to one driven by industry and consumer demand? SURYO SULISTO: I would say that the infrastructure and the agriculture sectors will benefit the most. Infrastructure is something we lack across the board in terms of roads, ports and airports. This must be improved to end logistical inefficiency and increase Indonesia’s ability to compete among ASEAN members. We are still a…

Interview

Jusuf Wanandi, Co-founder and Vice Chairman, Centre for Strategic and International Studies: Interview
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Interview:Jusuf Wanandi Indonesia will face a number of economic challenges over the coming year. Which immediate policy actions should be taken and with what aim? JUSUF WANANDI: The government should prioritise domestic stability in an election year. Observers have in recent years been euphoric about Indonesia’s impressive economic and rupiah strengthening before mass capital outflows took us back a step. This was somewhat foreseeable because of the negative current account for the last…

Analysis

Just the job: The government is enacting measures to sustain employment gains
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Despite having a large labour force of 121m people by February 2013, Indonesia has achieved a consistent fall in official unemployment over the past decade. Growing investment in manufacturing and services has driven job creation, although the most labour-intensive sectors tend to be the lowest value-added. With roughly half the 247m-population below the age of 30 and 63% of working age, the labour market requires sustained rapid economic growth to keep pace with demographic growth, which is seeing…

Analysis

An active role: The authorities have taken a range of measures aimed at securing the country’s long-term economic future
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Pressures on Indonesia’s current account came to a head in May 2013 as portfolio investments reversed their flow and began leaving the country. Authorities have reacted to curb further growth in the deficit. With Bank Indonesia (BI) responsible for monetary tightening, the government has followed with a series of measures to balance the trade position. Although the impact of fiscal measures will become evident only over the medium term, policies have yielded some early fruits. Over the long term,…

Analysis

Balancing growth: The central bank is taking action to ward off macroeconomic challenges
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With economic growth slowing, inflation rising and the currency weakening, Indonesia has some tough macroeconomic challenges ahead. However, the government has responded to the situation with a variety of monetary and fiscal policy tools, including raising interest rates while at the same time rolling out fiscal stimulus measures. Slowing Growth In August 2013 the central statistics agency issued GDP figures for the second quarter of 2013, showing that the economy had expanded by its slowest rate…

Interview

Edward Soeryadjaya, Chairman & Founder, Ortus Holdings: Interview
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Interview:Edward Soeryadjaya What are some of the biggest challenges that need to be overcome for the economy to move forward? EDWARD SOERYADJAYA: The immediate priority is to reverse the continuing trade deficit, while the long-term challenge is to attract foreign investment. Exports have mostly been dependent on natural resources, which have experienced a downturn for the past several quarters. Without greater investment to spur the level and variety of exports, the trade deficit will not…

Interview

Prijono Sugiarto, President Director, Astra International: Interview
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Interview:Prijono Sugiarto How much is the revised economic outlook for Indonesia’s GDP growth affecting corporations’ growth projections and expansion plans? PRIJONO SUGIARTO: A slowdown of Indonesia’s economic growth in 2013 was expected, following the subsidised fuel price increase, which sparked higher inflation and a 20% depreciation of the rupiah – due in large part to trade deficits. Despite this, I am confident in the medium- and long-term prospects of the country. On a global…

Interview

Prijono Sugiarto, President Director, Astra International: Interview
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Interview:Prijono Sugiarto How much is the revised economic outlook for Indonesia’s GDP growth affecting corporations’ growth projections and expansion plans? PRIJONO SUGIARTO: A slowdown of Indonesia’s economic growth in 2013 was expected, following the subsidised fuel price increase, which sparked higher inflation and a 20% depreciation of the rupiah – due in large part to trade deficits. Despite this, I am confident in the medium- and long-term prospects of the country. On a global…

Analysis

Impetus for reform: Changes are set to open new sectors to greater foreign investment
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Slower growth in Indonesia may provide an impetus to realise a range of reforms that the government is planning, changes that could open several important and attractive sectors to greater foreign investment. On November 6, 2013 the Indonesia Investment Coordinating Board (BKPM) announced plans to allow foreign investment in airports and ports, and to ease restrictions in the telecommunications and pharmaceuticals sectors. The announcement came just hours after official figures showed GDP growth…

Analysis

Eastern promise: Working to attract further investment into East Java
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With the province’s GDP growth hitting 6.49% in the third quarter of 2013, outpacing the national rate of 5.62%, it is clear that East Java’s commitment to boosting foreign and domestic investment is paying off. To support investors, the East Java branch of the Indonesia Investment Coordinating Board (BKPM) offers a one-stop service, which allows business licences to be issued within just 14 days in 2013, down from 17 days the previous year. However, it should be noted that this service is currently…

Analysis

Linking up: Connectivity plans are coming to fruition in East Java
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East Java is the principal gateway to eastern Indonesia, and its transport and logistics network is crucial to the development of the province. With the Surabaya port of Tanjung Perak currently the country’s second-busiest seaport, the completion of the new multipurpose terminal, Teluk Lamong, is highly anticipated and should help to reduce dwell times. Increasing Capacity The existing port of Tanjung Perak has been consistently operating over its general cargo capacity of 3.57m tonnes per year,…

Interview

Tri Rismaharini, Mayor of Surabaya: Interview
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Interview:Tri Rismaharini Surabaya is one of the most advanced cities in Indonesia, but where is infrastructural investment needed to bring it to the next level? TRI RISMAHARINI: In recent years many projects have been undertaken to develop Surabaya’s infrastructure and improve its accessibility, both from land and sea. New roads are continuously being built in the eastern and western areas of the city, and we plan to implement a mass rapid transit system in the near future. There is still…