Table of Contents
Indonesia is witnessing a growing middle class population, which shielded the economy during the global economic downturn. Growth stood at 6.2% in 2012. The country has, however, been witnessing a deteriorating trade deficit and sliding rupiah since 2012, and a tight monetary policy has been pursued in 2013 to correct these factors and put Indonesia back on the growth track. Indonesia launched an economic masterplan for 2011–2025 with the target of becoming a developed country by 2025, and total spending for the duration of the masterplan is estimated at $468.50 billion. The country stands to benefit from several demographic advantages and positive industrial prospects for industries such as automotive, healthcare, energy, and ICT.
Political Policy and Trends
• President Susilo Bambang Yudhoyono was re-elected in 2009 due to improved economic growth during his first presidential term. However, he cannot contest in the 2014 elections due to constitutional rules.
• Populist policies are expected to emerge in the time leading the 2014 elections. In 2012 for instance, petrol price hikes were avoided which led to soaring energy subsidy bills for the government.
• Indonesia was the largest recipient of Australian foreign aid for the Australian financial year 2012-2013. Australia is expected to set up its largest global embassy in Jakarta by 2015.
• Indonesia aided in resolving an Association of Southeast Asian Nations (ASEAN) deadlock in 2012 over the South China Sea issue involving China, the Philippines, Malaysia, and Vietnam.
• The European Union (EU) is interested in engaging in talks with Indonesia about the establishment of a Free Trade Area (FTA).
• Indonesia managed to maintain stable economic growth through the global economic crisis, however, it witnessed a trade and current account deficit in 2012. This was because of weak export demand amidst rising import demand by the country’s rising middle class. The rupiah saw a slide as a result.
• Labor intensive manufacturing firms stand to be affected by the X% minimum wage hike imposed in January 2013. This hike could result in layoffs as firms try to cope with rising costs.
Fiscal and Monetary Policy
• The budget for 2013 will focus on reducing the deficit from X% to X%. Following high energy subsidy bills in 2012, prices of petrol and diesel were hiked in June 2013. Apart from this, electricity prices are expected to be hiked by X% by the end of 2013.
• The Central Bank is following a tight monetary policy in the latter half of 2013 because of the sliding rupiah and rising inflation.
Investment and Competitiveness
• Foreign direct investment (FDI) rose in 2012 as Indonesia regained its investment grade status by two rating agencies in 2012 for the first time since the Asian financial crisis of 1997. Indonesia is striving to increase FDI byX% in 2013.
• Indonesia has several advantages in terms of its population.
oIn 2012,X% of the population was under the age of X.
oBy 2025, Indonesia is expected to experience a demographic dividend whereby the proportion of productive population will be larger than the proportion of unproductive population. This is expected to give rise to higher economic growth.
oIndonesia is witnessing a rising middle class that is expected to reach X million by 2014.
• A draft of the new banking bill was prepared in January 2013. If passed, this new bill will replace the 1998 bill. According to the draft, foreign banks cannot continue to operate as branches in Indonesia, but have to become legal entities.
• Automotive sales crossed the X million mark in 2012 and this upward trend is expected to continue especially driven by the rising middle class demand.
• A large volume of foreign direct investment (FDI) is expected to pour into the automotive sector over the next five years.
• Due to the rising fuel subsidy burden, the government is increasingly promoting low-cost green cars in Indonesia.
• There is regional disparity in the quality of healthcare services provided. Medical tourism to other Southeast Asian nations is becoming increasingly popular.
• Public expenditure on healthcare is quite low. Increased private investment in healthcare is being called for, especially due to rising middle class demand for better services.
• The government aims to provide universal health coverage by 2019 and operations for the same are expected to commence by 2014.
• The pharmaceuticals market grew by X% in 2012. The market participants could experience soaring costs because of the sliding rupiah, given high reliance on raw material imports.
• The medical devices market is also highly dependent on imports.
• Indonesia was a member of the Organization of Petroleum Exporting Countries (OPEC), however, it left it in 2008 as it turned into a net importer of oil and has remained so till date.
• Due to the rising energy demand, two new crude oil refineries are expected to be built by 2018, and natural gas import is expected to begin by 2018.
• The renewable energy potential of Indonesia remains largely unutilized; there is huge scope for growth given that the country is rich in these natural resources.
• Smartphone sales rose by X% in 2012. The third phase of 3G auctions is expected to be held by 2013. Initiation of 4G services is only expected in 2014.
• The bulk of Indonesia’s information technology (IT) spending goes into hardware which accounts for X%. This is followed by IT services and then software. Software piracy is rampant in Indonesia and is close to X%.
• Key ongoing information and communication technology (ICT) projects include the Palapa ring project, which is expected to be completed by 2014. The project will provide connectivity through fiber optic cables to X regencies and municipalities in X provinces.
• A regulation passed in 2012 requires foreign mining firms to divest X% of the stake within ten years of production which could potentially hurt new investment into the sector.
• The coal market faces the threat of an import ban by China and an increase in royalties by 2014.
President Yudhoyono was re-elected for a second term in 2009. Populist policies and political corruption are expected to rise before the next elections scheduled for 2014. With respect to its foreign relations, in 2012, Indonesia stepped in to mediate an Association of Southeast Asian Nations (ASEAN) deadlock regarding territorial disputes over the South China Sea, and is currently in talks regarding establishment of a Free Trade Area (FTA) with the European Union (EU).
President Susilo Bambang Yudhoyono
Vice President Boediono
Second United Indonesian Cabinet appointed by the President
DPR People’s Representative Council
560 members; passes legislation at national level
DPD Regional Representative Council
X members; provides legislative input on regional issues
• Supreme Court
• High Court
• District Courts Religious Courts
2009: President Yudhoyono was re-elected in 2009 due to anti-corruption efforts and improved economic growth in his first presidential term.
2011: The Cabinet was reshuffled in October 2011 in order to boost the economy and improve investor confidence given the public perception of a graft-ridden government.
2013: Following the 2002 Bali attack, the government has been vigilant about anti-terrorism. A bill on cracking down on terrorism was passed in January 2013 according to which banks and other financial service operators would have to report any suspicious financial transaction to the government agency against money laundering. The agency has the power to freeze bank accounts.
Indonesian Corruption Watch (ICW) has warned that political corruption could rise in 2013, given elections in 2014 and weak financing for political parties. Upcoming elections are also expected to lead to a rise in populist policies. For instance, petrol price hikes were avoided in 2012 which led to a missed opportunity to reform energy subsidies.
Following European Union’s (EU’s) failure to establish an FTA with ASEAN, it has decided to establish individual FTAs with individual member nations. EU completed negotiations with Singapore in 2012, and is in the process of negotiating with other ASEAN members including Malaysia, Thailand, and Vietnam. It is expected to soon enter into talks with Indonesia.
Indonesia stepped in to resolve an ASEAN deadlock in 2012 over the South China Sea issue where the Philippines, Malaysia, and Vietnam were in a dispute with China regarding territorial claims over the strategic waterway.
Indonesia was the largest recipient of Australian foreign aid for the Australian financial year 2012–2013, with a large chunk going towards education. Australia is expected to set up a new embassy by 2015 in place of the old one in Jakarta. This embassy will be Australia’s largest one globally signifying its intentions to deepen ties with Indonesia.
Membership in International Organisations, Indonesia, 2012
Asian Development Bank (ADB)
Asia-Pacific Economic Co-operation (APEC)
Association of Southeast Asian Nations (ASEAN)
Group of Twenty (G20)
International Monetary Fund (IMF)
World Trade Organisation (WTO)
Indonesia left the Organisation of Petroleum Exporting Countries (OPEC) in 2008 as it turned from a net exporter of oil to a net importer and has remained so till date.
Get Industry Insights. Simply.
Talk to Ahmad
+1 718 618 4302
Global Refining Industry Outlook to 2021 - Capacity and Capital Expenditure Forecasts with Details of All Operating and Planned Refineries Summary "Global Refining Industry Outlook to 2021 - Capacity and ...
Global Oil Storage Industry Outlook to 2021 - Capacity and Capital Expenditure Forecasts with Details of All Operating and Planned Terminals Summary "Global Oil Storage Industry Outlook to 2021 - Capacity ...
Global LNG Industry Outlook to 2021 - Capacity and Capital Expenditure Forecasts with Details of All Operating and Planned Terminals Summary "Global LNG Industry Outlook to 2021 - Capacity and Capital ...