Economy

Indonesia has a market-based economy in which the government plays a significant role. It owns more than 164 state-owned enterprises and administers prices on several basic goods, including fuel, rice, and electricity. In the aftermath of the financial and economic crisis that began in mid-1997, the government took custody of a significant portion of private sector assets through acquisition of nonperforming bank loans and corporate assets through the debt restructuring process.

Indonesian Gross Domestic Product (GDP) for 2005 was US$287 billion, with per capita GDP (PPP) being US$4,458, ranking Indonesia 110th in the world. The services sector is the economy's largest accounting for 45.3% of GDP (2005), followed by industry (40.7%) and agriculture (14.0%). Agriculture, however, is the country's largest employer, employing 46.5% of the 95 million-strong workforce, followed by the services sector (41.7%) and industry (11.8%). Major industries include petroleum and natural gas, textiles, apparel, and mining. Major agricultural products include palm oil, rice, tea, coffee, spices and rubber.

Trade

Indonesia's main export markets are Japan (22.3% of Indonesian exports in 2005), the United States (13.9%), China (9.1%), and Singapore (8.9%). The major suppliers of imports to Indonesia are Japan (18.0%), China (16.1%), and Singapore (12.8%). In 2005, Indonesia ran a trade surplus with export revenues of US$83.64 billion and import expenditure of US$62.02 billion. The country has extensive natural resources, including crude oil, natural gas, tin, copper and gold. Indonesia's major imports include machinery and equipment, chemicals, fuels, and foodstuffs.

Economic History

Despite its immense natural resources and agricultural productivity, prosperity has often failed to be equitable. Following independence, the economy deteriorated drastically as a result of political instability, a young inexperienced government, and ill-disciplined economic nationalism. By the time of Sukarno's downfall in the mid-1960s, the economy was in chaos with 1,000% annual inflation, shrinking export revenues, crumbling infrastructure, factories operating at minimal capacity, and negligible investment, resulting in severe poverty and hunger. The New Order administration brought a degree of discipline to economic policy that quickly brought inflation down, stabilised the currency, managed foreign debt, and attracted foreign aid and investment.

Indonesia is Southeast Asia's only member of OPEC and the 1970s oil price rises provided an export revenue windfall and growth from 1968 to 1981 that averaged over 7%. Growth slowed, however, to an average of 4.3% per annum between 1981 and 1988 due to declining oil prices, on which the Indonesian economy had become heavily dependant, and inefficiencies due to over-regulation. The late 1980s saw a range of economic reform measures including a managed devaluation of the Rupiah to improve export competitiveness, and de-regulation of the financial sector. Foreign investment flowed into Indonesia, particularly into a rapidly developing export-orientated manufacturing sector, and from 1989 to 1997, the Indonesian economy grew by an average of over 7%.

East Asian Financial Crisis

The East Asian financial crisis of 1997-98 hit Indonesia hard. Against the USD, the currency dropped from about Rp. 2,000 to Rp. 18,000 and the economy shrunk by a devastating 13.7%, causing much hardship. The Rupiah has since stabilised at around Rp. 10,000 and there has been a slow but significant recovery. GDP growth exceeded 5% in both 2004 and 2005 and is forecasted to increase. The patchy nature of the recovery has been exacerbated by political instability since 1998, perceptions of corruption at all levels of government and business, and a perceived slow pace of economic reform. Real per capita income has reached pre-1997 crisis levels and annual inflation in 2006 was estimated at 13%.