Indonesia Economic Development since 2004 Part II

The poor condition of the transport infrastructure is also having a negative impact on the economic situation. Its expansion is a central theme of President Joko Widodo’s economic policy. However, its economic policy is also becoming increasingly protectionist. This can be seen, for example, in the restrictions on the fields of activity of international investors and the regulations that have been in force since July 2015 that 10 local workers must be employed per expatriate and that all payment transactions in Indonesia are only permitted in rupiah.

Internet companies that offer their services in Indonesia will in future also pay taxes in Indonesia, otherwise they run the risk of their bandwidth being reduced or being blocked completely. However, it remains to be seen whether this can be implemented in practice.

As a result of the ongoing efforts to restructure the banking sector since the Asian crisis, the Indonesian financial market suffered relatively little from the global financial crisis in 2008/2009.

According to ezinereligion, the Indonesian banking system is well capitalized and basically stable. However, the proportion of bad loans has been increasing for some years. As a result, the focus is increasingly on credit quality. There are also risks that particularly affect companies that suffer from foreign currency debt.

Foreign trade boomed for many years (until 2020) although the declining growth figures in China since 2015 are increasingly burdening the foreign trade balance sheet. According to the Indonesian statistical office BPS, imports increased by more than 20% annually in 2011-2014, and exports by as much as 30.7%. The rapidly increasing numbers of tourists also contribute to economic growth.

According to the World Bank, the Indonesian economy will continue to recover due to the currently relatively stable political situation. Since 2010, economic growth has been between 4.8 and 6.4% annually. This growth will presumably continue in principle over the next few years, but according to the World Bank it will slow down somewhat. The Covid-19 pandemic will cause Indonesia’s economic output to decline for the first time since 2020.

In recent years, the importance of the digital economy in particular has increased significantly thanks to Indonesian startups such as Gojek and Bukalapak.

Nevertheless, the alarm signals are also increasing. Many analysts, including the Indonesian government, view the unchecked property speculation with great concern.

The current upswing is also largely due to the significant increase in raw material prices in recent years. In contrast, the share of the manufacturing industry shrank to less than a quarter of the gross domestic product.

Overall, economic consolidation, combined with a decline in unemployment figures and increasing earning opportunities, are often given greater priority than political freedom and environmental issues. Trade unions therefore had little influence on labor market policy in the first post-Suharto decade. However, since 2011 the unions have gained influence and have already contributed to a significant increase in minimum wages in many regions. The political elite is also increasingly realizing that solidarity with the trade unions can bring important votes.

In October 2020 there were violent street protests against a labor market reform promoted by President Joko Widodo, with which the labor market is to be significantly deregulated.

Child labor is widespread in some economic sectors.

The military continues to play an important economic role and is in part also, largely unaffected by the judiciary, active in areas beyond legality.

Oligarchs play an important role in Indonesian politics. Often they finance the election campaigns of future rulers at the national and subnational levels.

In the context of economic consolidation, the development and expansion of small and medium-sized industries and the tertiary sector play a major role.

For a long time after the Asian crisis, the German economy was very hesitant about direct investments in Indonesia. Mostly Asian companies recognized the opportunities of the huge Indonesian domestic market earlier.

Global status

Due to its large area, its high population and its natural resources, Indonesia is a strategically and economically very important country. Therefore, Indonesia is not only a leading member in the Southeast Asian community of states (ASEAN), but also in other regional alliances.

Indonesia is the only Southeast Asian country represented in the G20 forum.


With regard to the achievement of the Millennium Development Goals, UNDP Indonesia saw the country “on the way” to achieve the goals – at the same time, however, it should be noted that the prospects for achieving them are different in the individual provinces. In general, it can be doubted that it is not possible to achieve the goals for the time being on the national average. The Human Development Report currently ranks Indonesia 116th out of 187 countries. In the area of poverty alleviation, successes were undoubtedly achieved in places; nevertheless, the number of poor is increasing overall.

Governance problems and the lack of legal certainty mean that Indonesia’s great potential is poorly used. However, President Susilo Bambang Yudhoyono’s anti-corruption policy has resulted in Transparency International’s Corruption Perception Index initially showing significant improvements. In recent years, the Indonesia in the index had deteriorated again, which was mainly due to some spectacular scandals in which high-ranking politicians were involved. Indonesia is now in 89th place in the ranking.

President Joko Widodo had already proven during his tenure as Mayor of Solo and Governor of Jakarta that he is willing to take decisive action against corruption. He also proved this when selecting his first cabinet, whose candidates he had previously examined by the anti-corruption authority. Four candidates were then dropped.

The participation of civil society institutions in national development planning is still low. In the Indonesian strategy paper on poverty reduction (Poverty Reduction Strategy Paper – PRSP) is currently very inaccurate information found on this topic.

Garbage collector in Jakarta