Economy of Indonesia

History of Indonesian Economy

The economy of Indonesia is market- based in which the government plays a significant role. The country possesses more than 164 state-owned enterprises and administers prices on several basic goods. Still the economy of Indonesia is struggling with its relentless poverty and unemployment, insufficient infrastructure, widespread corruption, a fragile banking sector, a poor investment climate and unequal resource distribution among regions.

In the 70's the current Gross Domestic Product (GDP) grew to an astonishing 54.5% fuelled by oil demand, but growth fell sharply to a manageable 20% in the Eighties and 13% in the Nineties. All these masked a number of structural weaknesses in Indonesia's economy, viz the legal system with no effective way to enforce contracts, collect debts, or sue for bankruptcy showing an unsophisticated way of banking system. Non-tariff barriers, domestic subsidies, barriers to domestic trade, rent-seeking by state-owned enterprises and export restrictions all created economic deformations. However, the East Asian financial crisis of 1997-98 hit Indonesia quite hard with the government taking full custody of a significant portion of the private sector assets.

Economic overview of Indonesia

Indonesian GDP for 2005 was US $287 billion, with a per capita GDP of US $4,458, ranking Indonesia 110th in the world. The largest accounting for the 2005 GDP was the service sector followed by the industry and then agriculture. The countries largest employer however is agriculture, employing 44.3% of the 95 million-strong workforce, followed by the services sector (36.9%) and industry (18.8%). Other major industries include petroleum and natural gas, mining, textiles and clothing. Palm oil, coffee, tea, spices, rice and rubber are the major agricultural products.

The main export markets of Indonesia are Japan, the United States, and Singapore. The major suppliers of imports to Indonesia are Japan, China and Singapore. Indonesia has also extensive natural resources including crude oil, natural gas, gold, tin and copper and the major imports include machinery and equipment, chemicals, fuels, and foodstuffs.

The country is still working on rebuilding its economy after the devastation of the 2004 Tsunami and from the May 2006 earthquake in Java causing over $3 billion in damage and losses. Also the cost of subsidizing domestic fuel placed increasing strain on the budget of 2005. a three policy package was introduced by economic reformers in 2006 to improve the investment climate, infrastructure, and the financial sector, but translating them into reality has not been easy.

The key to positive future growth remain in the internal reformation of the country with building up the confidence of international and domestic investors, and strong global economic growth. Disastrously in 2006 and early 2008 Indonesia suffered a major earthquake near Yogyakarta, an industrial accident in Sidoarjo, East Java that caused a 'mud volcano', a tsunami in South Java, and major flooding in Jakarta, all of which caused additional damages in the billions of dollars.

•Fiscal year: calendar year (2006 est.)

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