Discover the amazing world of Indonesia


Indonesia economy

Indonesia has a market-based economy in whichNational Car Program and the clove monopoly,
the government plays a significant role. Itboth involving family members of President
owns more than 164 state-owned enterprisesSuharto. The rupiah failed to stabilize for
and administers prices on several basicany significant period of time, however, and
goods, including fuel, rice, and electricity.President Suharto was forced to resign in May
In the aftermath of the financial and1998. In August 1998, Indonesia and the IMF
economic crisis that began in mid-1997, theagreed on an Extended Fund Facility (EFF)
government took custody of a significantunder President B.J Habibie that included
portion of private sector assets throughsignificant structural reform targets.
acquisition of nonperforming bank loans andPresident Abdurrahman Wahid took office in
corporate assets through the debtOctober 1999, and Indonesia and the IMF
restructuring  process.signed another EFF in January 2000. The new
program also has a range of economic,
Current GDP per capita grew an astonishingstructural  reform,  and  governance targets.
545% in the Seventies fuelled by oil demand.
But this proved unsustainable and growth fellThe effects of the financial and economic
sharply to a manageable 20% in the Eightiescrisis were severe. In 1998, real GDP
and  13%  in  the  Nineties.contracted by an estimated 13.7%. The economy
bottomed out in mid-1999, and real GDP growth
During the 30 years of president Suharto'sfor the year was an anemic 0.3%. Inflation
"New Order" government, Indonesia's economyreached 77%in 1998 but slowed to 2% in 1999.
grew from a per capita GDP of $70 to moreThe rupiah, which had been in the Rp 2,400
than $1,000 by 1996. Through prudent monetaryUSD1 range in 1997 reached Rp 17,000/USD1 at
and fiscal policies, inflation was held inthe height of the 1998 violence, returned to
the 5%-10% range, the rupiah was stable andthe Rp 6,500-8,000/USD1 range in late 1998.
predictable, and the government avoidedIt has traded in the Rp 6,500-9,000/USD1
domestic financing of budget deficits. Muchrange since, with significant volatility.
of the development budget was financed byAlthough a severe drought in 1997-1998 forced
concessional  foreign  aid.Indonesia to import record amounts of rice,
overall imports dropped precipitously in the
In the mid-1980s, the government beganearly stage of the crisis in response to the
eliminating regulatory obstacles to economicunfavorable exchange rate, reduced domestic
activity. The steps were aimed primarily atdemand, and absence of new investment.
the external and financial sectors and wereAlthough reliable unemployment data are not
designed to stimulate employment and growthavailable, formal sector employment
in the non-oil export sector. Annual real GDPcontracted  significantly.
growth averaged nearly 7% from 1987-1997, and
most analysts recognized Indonesia as a newlyIn late 2005 Indonesia faced a 'mini-crisis'
industrializing economy and emerging majordue to rising oil prices and imports. The
market.currency reached Rp 12,000/USD1 before
stabilizing. The government was forced to cut
High levels of economic growth from 1987-1997its massive fuel subsidies, which were to
masked a number of structural weaknesses incost $14 billion for 2005, in October. This
Indonesia's economy. The legal system wasled to a more than doubling in the price of
very weak, and there was and is no effectiveconsumer fuels, resulting in double-digit
way to enforce contracts, collect debts, orinflation. The situation has stabilized, but
sue for bankruptcy. Banking practices werethe economy continues to struggle with
very unsophisticated, with collateral-basedinflation  at  17%  in  January  2006.
lending the norm and widespread violation of
prudential regulations, including limits onAs of early 2006, Indonesia's economic
connected lending. Non-tariff barriers,outlook is more positive. Economic growth
rent-seeking by state-owned enterprises,accelerated to 5.1% in 2004 and reached 5.6%
domestic subsidies, barriers to domesticin 2005. Real per capita income has reached
trade, and export restrictions all createdpre-crisis levels. Growth is driven primarily
economic  distortions.by domestic consumption, which accounts for
roughly three-fourths of Indonesia's gross
The regional financial problems that sweptdomestic product. The Jakarta Stock Exchange
into Indonesia in late 1997 quickly became anwas the best performing market in Asia in
economic and political crisis. Indonesia's2004, up some 42%. Problems that continue to
initial response was to float the rupiah,put a drag on growth include low foreign
raise key domestic interest rates, andinvestment levels, bureaucratic red tape, and
tighten fiscal policy. In October 1997,widespread corruption. However, there is very
Indonesia and the International Monetary Fundstrong optimism with the conclusion of
(IMF) reached agreement on an economic reformpeaceful elections during the year 2004 and
program aimed at macroeconomic stabilizationthe election of the reformist president
and elimination of some of the country's mostSusilo Bambang Yudhoyono.
damaging economic policies, such as the



1 A B C D E F 84 86 87 88 89 90 91 92 93 94 95 96 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130