Inside Indonesia
«The Indonesian Globalization»

                                                    SKEMA Business School...
BERGY Lauriane
   POIRIER Ophélie
RICHARD Géraldine

      In broad terms, globalization describes a process of increasing interdependence or the

                                                3    INTRODUCTION

       COUNTRY PRE...

SOCIAL                                                  established the Dutch East India Company (VOC)
SITUATION          ...
ECONOMIC                                              from 87 to 97 and it was looking like Indonesian
SITUATION          ...
about, with poverty (17,8% of the population is
below the poverty line).

The rupiah (Rp) is the official currency of

THE IMPACT OF THE GLOBALIZATION                       Then the language: Bahasa Indonesia is also a
ON THE CULTURE        ...
Indonesia is very active in Asia in term of                       been very weak because of the Politics. The fall
Increasing competition through a decrease of          broadly-based, may have shifted Indonesia’s
the tariffs trade       ...
by sector in 2008: agriculture: 13.5%, industry:
45.6%, services: 40.8%) etc… Some results
are tangible, even though some ...

           THE GLOBAL
Since 2008, the World Economy is been facing a        hikes in 2005, managed a gradual recovery to
deep downturn, one of t...
second quarter came from a faster recovery in           Waiting for these ideological reconsiderations, all
export volumes...
In brief, this stimulus package aims at                               Regarding poverty, the proportion of Indonesians

ENVIRONMENT                                              Second, poverty in Indonesia is still high. Most
World Bank report: Indonesia Economic Quarterly (September 2009)

Comtrade Indonesia 2008

Bank Indonesia ...
The Indonesian Globalization
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The Indonesian Globalization


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  • Hi Garbedian, awesome paper on Indonesia, and the anomaly it is. Bravo!! Intriguing to pin down on what exactly makes it tick, and to explain why it's performing against all odds, during the recent recession.
    Your paper reminds me of a McKinsey Global Institute Report on Indonesia of Sept 2012. I've even blogged about it. Here's a link:
    Let's stay connected. ciao, dian - san diego
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The Indonesian Globalization

  1. 1. Inside Indonesia «The Indonesian Globalization» SKEMA Business School GLOBALIZATION course - January 2010 - PARIS
  2. 2. BERGY Lauriane GARABEDIAN Robin PELLISSIER Zelia POIRIER Ophélie RICHARD Géraldine
  3. 3. INTRODUCTION In broad terms, globalization describes a process of increasing interdependence or the building of networks between individuals, firms, countries or regions. The emergence of these networks is evident in the economic field through the increased movement of goods, services, knowledge, ideas, finance and people. The following document addresses the question of globalization for Indonesia. After a presentation of the country, we will examine what are the implications of globalization for the country, and finally we will focus on the global crisis and its effects on Indonesia... 3
  6. 6. SOCIAL established the Dutch East India Company (VOC) SITUATION from early 17th century and became the The population of Indonesia is estimated at dominant European power. They colonized little 229,965,000 (2009 est.), and is expected to kingdoms which were Indonesia at this time and grow to around 315 million by 2035, based on united the whole land under one government. the current estimated annual growth rate of During the Second World War the Japanese got 1.14%. rid of the Dutch and imposed them. In August 1945, two days after the surrender of Japan, Indonesia contains 17  508 islands, the largest Sukarno, an influential nationalist leader took the being Sumatra, Kalimantan, Sulawesi, New power and declared himself as president. Guinea and Java. The fact of having so many Sukarno moved from democracy towards islands created a very particular country full of authoritarianism. diversity and languages: there are around 300 A very important moment in Indonesia which will distinct native ethnicities, and 742 different have many influences on the way globalization languages and dialects. The official national affects Indonesia is the set up of the ‘New Order’. language, Bahasa Indonesian, is spoken by General Suharto took the power in 1968 after a nearly every Indonesian. Six religions are officially coup. He set up a whole new plan for Indonesia. recognized: Islam (86,1%), Protestantism/ By giving a new political orientation to Indonesia Roman/Catholicism (8,7%), Hinduism(3%), he opened the country to western investments Buddhism (1,8%), and Confucianism. Indonesia and contributed to three decades of good is the world's most populous Muslim-majority economic growth. The New Order administration nation. brought a degree of discipline to economic policy The main ethnicities are Javanese (41%), that brought inflation down, stabilized the Sundanese (15%) and Minangkabau(3%). currency, rescheduled foreign debt, and attracted foreign aid and investment. Following further Concerning the age structure of Indonesia, there reforms in the late 1980s, foreign investment is 66% of 15/64 years old; 28% of 0/14 years old flowed into Indonesia. Particularly into the and 6% of more than 65 years old. This age manufacturing sector, and from 1989 to 1997, structure shows that Indonesia has a high level of the Indonesian economy grew by an average of young people, which will lead in 10 years to a over 7%. But after the Asian crisis in 1998 boom of the consumption in Indonesia. Suharto resigned. Some other important data are relevant here to In 2004 Yudhoyono became president and was understand the social situation of Indonesia. The re-elected in October 2009. His goal is to life expectancy is 68 years old (67 in average for implement a "pro-growth, pro-poor, pro- the East Asia & Pacific countries). The fertility rate employment" economic program. He announced is 2,31 born / woman. 90,4% of the population is an ambitious anti-corruption plan in December literate. The infant mortality is 26 for 1000 births 2004 as one of the biggest that is facing (35 for the East Asia & Pacific countries). 52% of Indonesia is the high level of corruption. the population is urban. The unemployment rate Transparency International ranked Indonesia is 8,4%, and 17,8% of the population lives below 143rd out of 180 countries in its 2007 Corruption the poverty line. Perceptions Index. HISTORY & POLITICAL Indonesia has close relationships with its SITUATION neighbors in Asia, and is a founding member of The modern Indonesia development has been ASEAN and the East Asia Summit. Indonesia has heavily affected by the countries who were ruling been a member of the United Nations since the land in the past. Indonesia has always been a 1950. Indonesia has received humanitarian and country filled with conquests, commerce and development aid since 1966, in particular from religious conversions. At the beginning, the the United States, Western Europe, Australia, country was a place where traders from India and and Japan. china were bartering goods, then the Dutch 6
  7. 7. ECONOMIC from 87 to 97 and it was looking like Indonesian SITUATION was becoming a new emerging country with a major market and opportunities of In 1997/1998 Indonesia was the hardest country industrialization. The Asian crisis arrived in 1997 hit by the Asian crisis. In May 1998 General and with the depreciation of the Thai currency the Suharto resigned. Following that a new era foreign assets and investments in Asia dropped began with a large number of economic and leaving Indonesia very affected. In 1998, political reforms leading to a better stability. Indonesia experienced a negative GDP growth of To understand this graph let’s talk a little about 13.1% and unemployment rose to 15-20%. You the economical situation before the Asian crisis can see in this graph that Indonesia has been hit and the aftermath. The Indonesian gross severely in 97/98 by the Asian crisis indeed the domestic product (GDP) growth averaged 7% GDP per capita drop from $2572 in 97 to $2226 in 96. GRAPH.1 GRAPH.2 Since the crisis, Indonesia has recovered little by The GDP by capita is 3900$(2008 est.). The real little by recapitalizing its banking sector, growth rate (2008 est.) is 6,1%. improving oversight of capital markets, and taking steps to stimulate growth and investment, Since 2004 the government has done some particularly in infrastructure. GDP growth has successful reforms for example in the tax/ steadily risen to achieve real growth of 6.3% in customs areas and a new investment law passed 2007 and 6.1% growth in 2008. in 2007. This law has been done to try to increase the amount of foreign and domestic Currently the GDP (purchasing power parity) is investments. Despite some improvements $914.6 billion (2008 est.). World Bank ranked Indonesia is still fighting with poverty and Indonesia 16th in term of GDP by PPP. unemployment (Estimation 2008: Unemployment Rate: 9,75%), with corruption as we just talked 7
  8. 8. about, with poverty (17,8% of the population is below the poverty line). The rupiah (Rp) is the official currency of Indonesia. The Bank of Indonesia is issuing and controlling it, the currency code for the Indonesian rupiah is IDR. The Table below shows the GDP by sector. The services sector is the economy's largest and accounts for 43,3% of GDP. It is followed by industry (43%) and agriculture (14.0%). However, agriculture employs more people than other sectors, accounting for 44.3% of the 95 million- strong workforce. This is followed by the services sector (36.9%) and industry (18.8%). Major industries include petroleum and natural gas, textiles, apparel, and mining. Major agricultural products include palm oil, rice, tea, coffee, spices, and rubber. Indonesia left the Organization of Petroleum Exporting Countries (OPEC) in 2008, as it had been a net petroleum importer since 2004. In 2008, the oil and gas sector is estimated to have contributed $25.3 billion of government revenues. U.S. companies have invested heavily in the petroleum sector. Indonesia ranked 11 in world gas production in 2007. Indonesia has as well a lot of different minerals (bauxite, silver, tin, copper, nickel, gold, coal). Indonesia has 124 commercial banks (10 are majority foreign-owned and 28 are foreign joint venture banks). Four state-owned banks (Bank Mandiri, BNI, BRI, BTN) control about 37.4% of assets. The Indonesian central bank, Bank Indonesia (BI), announced plans in January 2005 to strengthen the banking sector by encouraging consolidation and improving prudential banking and supervision. 8
  10. 10. THE IMPACT OF THE GLOBALIZATION Then the language: Bahasa Indonesia is also a ON THE CULTURE product of imports (Arabic, Chinese, Japanese, It is very interesting to talk about the Indonesian Dutch, Portuguese and English) mixed with the culture because it appears many traders from all old dialects from the islands, around the globe had landed their feet in the The clothes are mainly western now and even the country and mingled with local cultures which ‘traditional’ costumes have long been influenced had been affecting the local culture for centuries. by Chinese, Indian and Arab cultures. We can see that Indonesia experienced Indonesian culture is a mix from local cultures globalization in three waves: Christianization, the and from many cultures brought by traders and tourist industry, and urbanization. the western so we can conclude than for Christianity came to Indonesia with Western Indonesia cultural globalization is certainly not a traders in the 16 th century. Before that product of modernity but a long process which Indonesians were animists and this way of began a long time ago. thinking remains in the hearth of many But, globalization has also various political and Indonesians even when they are Muslims or economical impacts on Indonesia either favorable Christian,…In the early 17th century, trade and o r t h re a t e n e d . L e t ’s re v i e w t h e m a j o r political power was taken over by the Dutch East consequences of the globalization and the recent Indies Company and following the Western crisis, which affected or still affects the Reformation most of the Roman Catholic Indonesia’s economy. congregations were forced to become Calvinist Protestants. STRENGHTS Islam emerged as major religion when Sultan The balance trade remains positive despite the Alauddin, the King of Goa, Islamized other crisis. kingdoms by military force. Islam became a In 2007 and 2008, Indonesia showed a trade popular religion and mixed with old traditions. surplus. Despite the crisis, exports have done The way the Indonesians practices faith (mix of well in 2009, but the trade surplus has had a old beliefs and Islam) became a tourism downward trend because of the rapid increase of attraction. In Bali for example, apart from the imports. Emerging exports such as footwear and withes beaches tourist can find as well millions consumer electronics also showed weak growth. temples, many type of dances and ceremonies However, rising world prices for oil (except in that they can’t find elsewhere in Indonesia. Bali 1997 and 1998), rubber, and other commodities became one of the main touristic destinations in kept these exports high. The increase in non-oil south-east Asia. The population of Bali is around imports owes much to the demand for consumer 3,000,000 and yet 2,000,000 foreign tourists and goods. Economic, political, and social crisis was 1,500,000 Indonesian tourists visit every year. accompanied by a small leap in exports due to This is 1.166 times the permanent population. currency depreciation, but earnings in the non-oil Tourism has affected the Balinese culture, the sector remained low. Oil and Gas trade balance way Balinese practice the dance now and show remains positive (despite declining trends). that in public is different than before when the Toward an economic integration… dances were only a way to celebrate religion. Globalization has given the government a strong It is very interesting to see how globalized is justification for undertaking market-oriented Indonesia. reforms that can help maintain high and Most of the "traditional" recipes are a complex sustainable rates of exports necessary for strong blend of cultural influences. Chinese, Indian, economic growth. In order to remain competitive Arab, Dutch, Spanish, Portuguese and Anglo. in a globalized market Indonesia has Even the world-famous Indonesian Rijsttafel (rice implemented a gradual policy of liberalization table), a banquet of many dishes, was a Dutch showed a real will to meet the requirements of colonial creation. different global organizations and regional ones such as WTO and ASEAN. 10
  11. 11. Indonesia is very active in Asia in term of been very weak because of the Politics. The fall Foreign Direct Investment (FDI). of Soeharto in 1998, however, has allowed a better space for civil society. Indonesia receives a lot of FDI from Singapore and sends a lot to the Asian countries as well. A pattern of governance still focused on the Also, we can see that Indonesia has well political concerns to the detriment of the market recovered from the Asian financial crisis and is and society’s concerns. becoming an attractive location for investors This is a real weakness of the Indonesian despite the risks such as corruption or political government, which not only considerably slows instability and despite the concentration of the the process of liberalization of the economy but investment on the new attracting countries as also leads to the increasing asymmetries. To be China or India. more competitive and to achieve a healthy g ro w t h , I n d o n e s i a m i g h t n e e d s a n e w WEAKNESSES governance model based on a full involvement of Corruption, still ingrain in the mindset civil society and a strong and balanced partnership between the three sectors which are Despite a challenging anti-corruption plan in currently separated and hierarchical: December 2004, Transparency International Government, Market and Civil society. ranked Indonesia 143rd out of 180 countries in its 2007 Corruption Perceptions Index. But, in 2009, Indonesia won 32 ranks, the country is OPPORTUNITIES now ranked 111st. Indonesia sounds being more Focus exports on manufactured products determined than never to keep fighting corruption in the country in order to welcomed more and In 2008, imports increased by 73.5 percent more credibility, so more foreign investments. largely due to machinery and transport equipment and manufactured goods. This could Still huge disparities in the Indonesian society lead to a more competitive economy and a Indonesia still has to deal with the disparities healthy growth based on a competitive resulting from globalization. For example, the advantage. increasing asymmetries of income and access to economic opportunities between different groups Give a greater place to the business sector in the society as well as between different The business sector has been apart so far due to regions, sectors and companies. Enhanced by an important agricultural sector. The government globalization and by a government focused on has implemented reforms to give more autonomy the political aspects, Indonesia has to face huge to the business sector. It can be a real inequalities within its civil society (still 17.8% of opportunity to improve their competitiveness in the population under the poverty line whereas a this globalized market. similar country such as Thailand has 10% of its population under the poverty line). Give a greater place to the civil society and encourage it to consume But, with the economic crisis, South-east Asians d i s c o v e re d t h e ro l e o f c i v i l s o c i e t y i n If we take a look at the age structure of development. We can define the term “civil Indonesia, we can see that the 15/64 years old society” as: “the sphere of institutions, represent 66% of the total population; the 0/14 organizations, and individuals located between years old represent 28% and the 65 years old, the Family, the State and the Market, in which only 6%. This high level of young people could people associate voluntarily to advance common lead to a boom in 10 years of consumption in interests.”* But they still have some way to go to Indonesia. become an equal partner in a kind of tripartite *Definition by CIVICUS, an international association of governance (Government, Market and Civil civil society organizations Society) for development and security in the era of globalization. In Indonesia, civil society has 11
  12. 12. Increasing competition through a decrease of broadly-based, may have shifted Indonesia’s the tariffs trade structural inflation rate to an even higher level. Today, Inflation has decreased to 6.3% which In agreement with the Bogor goals defined during should lead to an increase in the investments. a meeting in 1994 where APEC leaders described their vision of free and open trade and THREATS investment, Indonesia is planning significant tariff The depreciation of the currency also perceived reductions in its Tariff Harmonization Program as a threat for the imports and has agreed to reduce protection under several new FTA Agreements. In other words, A weak currency can also lead to major problems new forces will take over the work of the Uruguay to import and mostly if we consider that most of Round in opening Indonesian markets. Indonesia the Indonesian imports are based on machinery is very confident to meet the Bogor deadline and equipment to be able to produce their (which is in 2010, so pretty soon) in terms of manufactured products that they will export to average tariff levels. their major partners such as Japan, China or Singapore. So that is why, it is very important to In a globalized world, the depreciation of the keep in mind that a depreciated currency could currency as a good opportunity for the exports have some important negative points on the The exchange rate of the rupiah against the USD domestic economy. had been stable in the 9,000-10,000 rupiah/USD Indonesia remains hard to enter for foreign range since 2003, but as the global economic investors financial crisis accelerated in September 2008, the rupiah began to depreciate sharply reaching Foreign direct investment (FDI) in Indonesia rose nearly 13,000. This can be a real opportunity to 73 percent to $10.3 billion in 2008 thanks to boost the exports, as they are cheaper for a lot of political stability and an improving climate in buyer country, due to the exchange rate. Southeast Asia. But Indonesia remains hard to enter for foreign investors. Various reasons can Indonesia’s inflation rate holds near nine-year explain this phenomenon: corrupt and inefficient low customs services; non-transparent and arbitrary Indonesia’s inflation held near a nine-year low in tax administration; inflexible labor markets that December 2009, providing the central bank room have reduced Indonesia's advantage in labor- to delay raising interest rates. Bank Indonesia has intensive manufacturing; increasing infrastructure kept its interest rate at a record low of 6.5 bottlenecks; and uncompetitive investment laws percent since August 2009 following nine rate and regulations. In each of the past three years, cuts that have helped Southeast Asia’s biggest the Government of Indonesia has announced a economy avoid a recession. Low inflation and a series of economic policy packages willing to decline in borrowing costs may lead on stimulate investment and infrastructure consumer spending, which accounts for about improvements. two-thirds of Indonesia’s $514 billion economy. This will provide the opportunity for banks to further lower their rates, which should boost the For a lot of people Indonesia is still associated economy. to a centralized and corrupt administration with a lot of weaknesses in some key areas such as An Inflation which tends to be controlled. the court system. But the government took on The Indonesian’s rate continues to be higher than challenges to change the tainted image on the country in order to impose Indonesia in this its trading partners—most of them are now context of globalization through different ways experiencing deflation—however, since late 2008, such as the respect of the WTO rules, its Indonesia’s inflation rate has fallen by more than rapprochement with the APEC, the most of its major trading partners. This is despite management of the inflation and the currency, concerns that the depreciation of the rupiah in the effort to jump off from a economy based on late 2008, and the rise of inflation expectations to the primary sector (agriculture) to one based on high levels earlier that year as inflation became the manufactured products (GDP composition 12
  13. 13. by sector in 2008: agriculture: 13.5%, industry: 45.6%, services: 40.8%) etc… Some results are tangible, even though some of the key reforms are of relatively recent origin. Unless the emerging global downturn overwhelms these efforts, they are likely to bear the fruits in the years ahead. 13
  15. 15. Since 2008, the World Economy is been facing a hikes in 2005, managed a gradual recovery to deep downturn, one of the deepest crisis since provide added stimulation for private World War II. The financial crisis in the United consumption. Investment began to show States of America (US) characterized by the significant improvement following a downturn subprime mortgage in the housing sector brought on by slackened domestic demand. constitutes the origin of this international slump. Exports maintained their rapid expansion at the The subprime mortgage crisis spread over other beginning of the year, supported by world assets as well as triggered a liquidity crunch. demand and high international prices for Few months later, this financial crisis turned into resource- based commodities. Economic crisis (commodity and fuel prices soaring, growth decreasing, unemployment) then, All economic sectors reported higher levels of according to the contagion effect, into a Global growth compared to the preceding years. crisis (fall of FDI, global recession) accentuated Leading growth sectors were transport and by the globalization and the reliance of all the communications, electricity, gas and water countries to US. supply sector, construction, financial sector and trade, hotels and restaurants sector. As countries opened to the world’s economy, emerging and developing economies such as Manufacturing, trade and transportation were the ASEAN countries experienced a serious main sectors driving the growth of the economy. slowdown. Growth in emerging and developing As a summary and as of 2007, the Manufacturing economies is expected to slow sharply from 6 ¼ sector counted for 43 percent of the Growth percent in 2008 to 3 ¼ percent in 2009, under Domestic Product, whereas Services and the drag of falling export demand and financing, Agriculture represented 43.3 percent and 13.8 lower commodity prices, and much tighter percent accordingly. external financing constraints (especially for During the second half of 2007, the global economies with large external imbalances). economy began to slowdown. Despite these first Stronger economic frameworks in many signs of the upcoming Global slump, Indonesia’s emerging economies have provided more room economic growth accelerated to a ten-year high for policy support to growth than in the past, of 6.3 percent in 2007. This growth rate was helping to cushion the impact of this sufficient to reduce poverty from 17.8 to 16.6 unprecedented external shock. percent based on the Government’s poverty line The following chapter highlights the situation of and reversed the recent trend towards jobless Indonesia regarding the Global Crisis, its impact growth, with unemployment falling from 10.3 to on the domestic and international economy as 9.1 percent. Poverty and unemployment are one well as the government responses and the of the main issues in such an emerging/ Stimulus package associated developing country; given that the way to a sustainable economic development definitely depends on the improvement of the poverty level, REMINDER OF THE INDONESIAN KEY we must consider this issue to appreciate the DRIVERS BEFORE THE GLOBAL CRISIS Indonesian situation. This point will be handle Before the impacts of the Global crisis, the later on. Indonesian economy showed overall improvement. On 2007, the economic growth THE INDONESIAN SITUATION AFTER THE surpassed that of the previous years, reaching its PEAK highest level since the outbreak of the Asian On 2008 Q4, the international economic and Crisis in the year’s 1997. financial turbulence reached its peak. Since the beginning of 2008, the Indonesian growth The impressive gain in economic growth before continued to fall until 4 percent in Q4, on a year- the Global Crisis was reflected in surging on-year basis. domestic demand and relatively strong exports. In the first half of 2007, public purchasing power, Thus, during the second quarter of 2009, the which had weakened in 2006 after fuel price main driver of the Indonesian growth in the 15
  16. 16. second quarter came from a faster recovery in Waiting for these ideological reconsiderations, all export volumes than in imports. This status could the governments of each country set up huge be explained by the high commodity prices, on recovery plans over the world. As an example, which Indonesia responded by some The American Recovery and Reinvestment Act of improvement in exports compared to imports, 2009 represents $787 Billion, whereas EU spent preventing reliance to foreign countries. In the 200 Billion Euro, and France 26 Billion Euro. same time, government consumption strongly Thus, after deep crisis such the one we are grew, rising 2.7 percent quarter-on-quarter to be experiencing, governments definitely have an 17.0 percent higher year-on-year, well above its important role to correct the imperfections of the 5-year average whereas private consumption “holy” Free Trade. In this framework, the stabilized. Indonesian government played a role to aid the economic recovery. Is spite of the fact that the impact of the crisis is not as deep as in developed countries, the First of all, there is no doubt that the fiscal drivers of the Indonesian growth shifted during stimulus set up by the government during the the slump. During 2009 Q2, accelerating service very period of the crisis has helped to cushion the sector activity supported the pickup in aggregate meltdown. The government’s program of tax GDP growth. This is a turn-around of the steady cuts has reduced tax revenues, and some of deceleration, which began in mid-2008. The these cuts were programmed in 2008 towards acceleration is mostly attributable to the retail expanding the base of registered taxpayers. The sector, which constitutes the largest share of the notional value of these cuts was Rp 43.0 trillion service sector, and is corroborated by the gradual or 17 percent of 2008’s non-oil & gas income tax rise in the monthly retail sales index. Growth in receipts. Others were introduced to support the industrial sector has remained stable despite spending and employment in sectors particularly expectations of a slowdown, growing very close vulnerable to the fall in commodity prices and to its five-year average growth rate in the quarter. global economic downturn, with an estimated Most industrial sectors experienced stronger value of Rp. 13.3 Trillion. growth, but mining, which continued its secular decline in activity, offset this. Following robust But the main contribution of the government growth in 2009 Q1, total agricultural production regarding the global crisis remains the Stimulus slowed as food and non-food farming output Package, set up in 2009 for a middle/long term contracted. perspective: As a conclusion, in the first half of 2009, On February 24, 2009, the Indonesian Indonesia’s economy has established a solid government received approval from the House of recovery from late last year. This recovery Representatives to launch the stimulus package, coincides with an improved external environment. of the total Rupiah 73.3 trillion ($6.3 billion). This Q2 GDP outcomes across its major export amount includes tax savings of Rp 43 trillion, destinations were better than expected, and government spending and subsidies of Rp 15 most trading partners exited recession by mid- trillion and waived import duties and taxes year. International prices of many of Indonesia’s amounting to Rp 13.3 trillion. exports have recovered much of the late 2008 I we go in-depth into the package, this can falls. These developments have supported broken down into several independent parts. On Indonesia’s economy, with exports recovering the one hand, Rp13.3 trillion and Rp 43 trillion faster than imports. have been set aside for waived taxes for consumers and businesses and tax savings ROLE OF THE INDONESIAN GOVERNMENT respectively. On the other hand, Rp 10.2 trillion DURING THE CRISIS AND THE STIMULUS has been allotted for infrastructure spending with PACKAGE Rp 2.8 trillion as diesel subsidy and Rp 1.4 trillion The Global Crisis arisen in 2008, as we in form of discounted electricity rates for mentioned before, is unprecedented since WWII, industries. Rp 0.6 trillion has been earmarked for and represents a reconsideration of the world’s developmental expenses for rural areas. financial and economic system in long term. 16
  17. 17. In brief, this stimulus package aims at Regarding poverty, the proportion of Indonesians strengthening consumer’s purchasing power, living in poverty also fell in the year to March, i n c re a s i n g s p e n d i n g o n l a b o r- i n t e n s i v e from 15.4 percent to 14.2 percent. This fall is infrastructure, and raising sturdiness and despite the rapid increase in the cost of living, competitiveness among businesses. especially for poorer households, through to the third quarter of 2008, and the decline in incomes POVERTY & EMPLOYMENT ISSUES, AFTER and employment that is likely to have occurred CRISIS SITUATION around the turn of 2009 as commodity prices Population below poverty line in Indonesia is slumped and economic activity stalled. Modeling around 17.8 percent in 2006, with a rank of 108 suggests that much of the fall in the poverty rate of the poorest country in the world. One of the is attributable to the boost in poorer household’s relevant questions we can raise is to know in income from the unconditional cash transfer what measure has the global crisis increased this program (BLT). situation, considering the employment as well, The forecasts for GDP growth and inflation which is one of the main means to curb poverty. suggest that the poverty rate is likely to continue In 2009, employment does not appear to have to fall albeit at a slower pace than occurred in the been significantly affected by the slowdown in the last year. Whatever the pace of the poverty fall, economy around the tur n of the year. this is still a good news for a country such as Employment rose by 2.4 percent or 2.44 million Indonesia… workers in the year to February to 104.5 million, faster than the 1.6 percent growth in the p o p u l a t i o n a g e d 1 5 a n d o v e r. F e m a l e employment increased by 3.3 percent, almost twice as fast as male employment, and the labor force participation rate increased for both genders to an average 68.5 percent over all. Trade made the largest contribution to the increase in employment, with 21.8 million Indonesians working in the sector in February 2009. 43.0 million work in agriculture, 0.8 percent more than a year earlier. Together these increases were more than enough to absorb the growing workforce and higher participation, leading unemployment to fall 0.3 percentage points to 8.14 percent. Nevertheless, we have to take the sting out of this statement if we consider the Indonesian situation of the “casual employment”. The casual non-agricultural workforce increased by 7.3 percent, and the unpaid labor force increased by 4.0 percent to 18.7 million; the number of ‘employers’ barely changed. Casual employment particularly affects female workers: only 39 percent of female workers report being an “employer” or “employee”, while almost 60 percent of male workers are in these categories, and this trend became stronger in the year 2009 to February. 17
  19. 19. ENVIRONMENT Second, poverty in Indonesia is still high. Most families in Indonesia continue to live just above Indonesia is particularly vulnerable to the effects the poverty line. Higher growth during the next of climate change, which include rising sea levels years will be necessary to bring down absolute and erosion of coastal areas, increased frequency poverty (now at about 6%), but also to reduce and intensity of extreme weather events, species the numbers of the “near-poor”, which account extinction, and the spread of vector-borne for almost half of the Indonesian population and diseases. But Indonesia is encountering many who are vulnerable to shocks. A support for this difficulties to find a way to cope with this. group will be necessary to stimulating the Indonesia has the fastest deforestation rate which domestic economy and the democratic transition makes it the third-largest contributor of process. Indonesia also needs to restore the greenhouse gas emission (behind China and the performance of tradable sectors, a rapid growth US). In December 2007 Indonesia organized the in those sectors is essential to finance investment 13th Conference of the Parties of the United and sustain external debt service payments in Nations Framework Convention on Climate future years. Change (UNFCCC), and led efforts to highlight the importance of forests and deforestation in the climate debate. THE INDONESIAN SITUATION AFTER THE PEAK Indonesia is also having the greatest marine Transport equipment may become a new driver biodiversity on the planet. President Yudhoyono of Indonesia’s manufactured exports. This called for a Coral Triangle Initiative (CTI) in August industry appears to have found an international 2007. The Coral Triangle Initiative is a regional market its exports growing by 37% in 2007, plan of action to enhance coral conservation, contributing 5.7% to the growth in non-oil promote sustainable fisheries, and ensure food exports. In contrast, growth in the traditional security in the face of climate change. manufacture exports of textiles, clothing, and footwear declined to only 4% in 2007 after C O N T I N U E T O C U R B P O V E RT Y A N D 2006’s 11% growth, reflecting increasing IMPROVE EMPLOYMENT competition from China and Vietnam. The level of public expectations is high in Indonesia given that the 1997-1998 economic crises wiped out the gains of the previous 30 years. The economic crisis has left a deep trauma in Indonesia, eroding public confidence in the nation’s economy. Despite this, the Government has pursued some unpopular policies, such as the fuel price hikes in 2005 and early 2008, with successful results. Thanks to those policies, the economy has stabilized and revitalized. In the medium and long-term perspective, Indonesia still needs to attain higher levels of economic growth over the coming decade for different reasons. First, changes in technology have reduced elasticity in job creation per 1% of economic growth. Thus to low unemployment Indonesia's non-oil and gas sectors will have to maintain a consistent level of growth throughout the coming decade. 19
  20. 20. SOURCES Reports World Bank report: Indonesia Economic Quarterly (September 2009) Comtrade Indonesia 2008 Bank Indonesia 2008 Report Indonesia 2009 IAP Study Report World Investment Report 2008 International Monetary Fund: World Economic Outlook Update 2008, Websites World Bank website: Crisis talk, emerging markets and the financial crisis: InvestDev_Oct03Mar04.pdf