The Overview Of Economics

Published Date: 02 Nov 2017

Indonesia, a large polyglot nation, experienced an estimated growth of 6.1% and 6.4% in 2010 and 2011 respectively. In 2010, the economy of Indonesia seemed on track for faster growth and better living conditions, but may still decrease. The economy has continued to gradually strengthen and growth of GDP for 2011 is 6.4% (ADB). GDP growth in 2011 is expected to be underpinned by consumption spending, the main driver of growth in Indonesia.

The government made economic advances under the first administration of current President Yudhoyono, introducing significant reforms in the financial sector, including tax and customs reforms, the use of Treasury bills and the development of capital market. When the global financial crisis happened, Indonesia outperformed its regional neighbors and joined China and India as the only G20 members to slow growth in 2009. The government has promoted policies fiscally conservative; resulting in a debt-to-GDP ratio is below 25%, a small current account surplus, less than 2% budget deficit, and the historically low rate of inflation.

Compared to its neighbors, Singapore and Malaysia, economic growth in Indonesia is not as outward looking and export-dependent. However, the country still faces serious challenges in improving its infrastructure and regulatory environment and the fight against corruption and the unequal distribution of resources between regions.

The investment policies are based on the idea to help strengthen and according to the country's industrial structure. Therefore, the government gives priority to industries producing capital goods, intermediate goods and raw materials needed to build a solid foundation for the acceleration of industrial growth.

The large size of the domestic market in Indonesia was the main factor in the growth of GDP in recent years. The new administration of President Yudhoyono, introduced new reforms that will reduce unemployment less corrupt economy and infrastructure development

In late 2010, increasing inflation, driven by rising and volatile food prices poses an increasing challenge to economic policymakers and threatened to push millions of the near-poor below the poverty line. The government, in 2011, was facing the constant challenge of improving Indonesia's infrastructure to remove obstacles to growth, while addressing concerns about climate change, especially in regard to forest conservation in Indonesia and repressed land.

In 2010, rising commodity prices and external demand contributed to an increase in exports of goods by 32%. Exports of natural rubber have more than doubled, and exports of palm oil rebounded by about a third in terms of the previous year. Imports grew even faster intermediate and capital goods. Foreign direct investment increased by 161%, reflecting better national and international levels. Central government revenue increased by 19.5% compared to the previous year. And expenditure was 6.5% lower than expected in 2010.

Total subsidies reached Rp214.1 billion (3.4% of GDP), 6.4% higher than expected, due to subsidies to higher electricity and expansion of a program that provides rice to the poor. Central government debt fell to around 26% of GDP, less than half its level in 2004.

Recognizing these improvements (as well as the macro-economic performance) Global Competitiveness Report of the World Economic Forum updated ranking of Indonesia 10 places to number 44 in 2010

OUTLOOK 2011

In 2011, private consumption is expected to grow, as well as higher prices for agricultural products are expected.

Private investment will remain robust, given the domestic growth of domestic consumption and external demand for agricultural and mineral products.

Merchandise export growth will slow this year, due to strong rebound in 2010. The earthquake in Japan will likely have a short and modest impact on exports (Japan accounts for about 12% of exports). Reconstruction will stimulate the demand for energy and raw materials Indonesia. The high prices of commodities suggest that merchandise exports increase by about 15% in 2011. Imports are expected to increase by about 17% due to strong investment and consumer demand.

The trade surplus increased slightly, but deficits in services and the income is widening due to higher transportation costs associated with large trade flows and repatriation of profits and dividends. The current account surplus is seen declining to 0.5% of GDP in 2011 and 0.1% in 2012. The overall balance of payments is expected to remain in surplus due to the continuation of entries (but moderator) portfolio and foreign direct investment.

Inflation was about 7% in the first two months of 2011 and is expected to remain relatively high during the first half of this year, before slowing in the second half due to base effects and the expected improvement in national food supply. For the full year, inflation is expected to average 6.3%. It will calm down a bit in 2012 if the global food and commodity prices slow.

A business relationship with Union the European Union is considered the fourth major trading partner. Indonesia has access to the European market using the "generalized system of preferences (GSP)" providing preferential access to goods produced in developing countries. In 2007, Indonesia was one of the main beneficiaries in the world of GPS.

Trade and economic indicators

(Table-1)

Indicators

2006

2007

2008

2009

2010

2011

GDP (US$ bn) (current price)

364.6

432.2

510.2

539.4

706.6

844.2

GDP per capita (US$ at PPP)

3314

3583

3836

4001

4239

4522

Real GDP growth (% change yoy)

5.5

6.3

6

4.6

6.1

6.1

Current account balance (US$m)

10860

10492

125

10192

6294

9483

Trade balance (US$m)

29661

32754

22916

30147

31092

37405

Services balance (US$m)

-9875

-11842

-12998

-9675

-9491

-10148

Consumer prices (end period; % change)

6.6

5.8

11.1

2.8

7

5.3

Exchange rate (national currency per US$)

9020

9419

10950

9400

8991

8611

1.4 OVERVIEW OF TRADE AND INDUSTRY AT INTERNATIONAL LEVEL

TRADE OVERVIEW

Indonesia is the largest economy in the Association of Southeast Asian Nations. However, its rank is the fourth position within the region as a trading partner with the EU's bilateral merchandise trade just reaching € 23.5 billion in 2011. The total commercial services trade between the EU and Indonesia in 2011 amounted to € 3.7 billion, representing more than 14% of total trade. Recently, Indonesia has bilateral agreements with two new countries, namely Mexico and Brazil to develop trade relations with these countries.

Indonesia is exporting the commodities which includes oil and gas, electric appliances, plywood, rubber and textiles to Japan, U.S.A., Singapore, China, Australia, Germany and Russia and importing the commodities includes machinery and equipment, fuel, chemicals and foodstuffs from Germany, Japan, Taiwan, Russia and Australia.

Export – Import Figures

(Table – 2) ($ Million)

Description

Jan-Apr 2011

Jan-Apr 2012

% change of Jan –Apr 2012 over 2011

Total Exports

61941.7

64498.1

4.13

Oil and gas

11917.7

13346.2

11.99

Non oil and gas

50024.0

51151.9

2.25

Agricultural

1680.5

1630.5

-2.97

Manufacturing

38678.6

38393.7

-0.74

Mining and Others

9664.9

11127.7

15.13

Total Imports

53683.0

62369.2

16.18

Consumption Goods

4287.6

4419.0

3.06

Auxiliary Goods

40180.5

45488.3

13.21

Capital Goods

9214.9

12461.9

35.24

Balance of trade

8264.7

2128.9

-

PARTICIPATION OF INTERNATIONAL ORGANIZATION:

Indonesia is associated with many trade organizations include, ADB, APEC, ARF, ASEAN, BIS, CICA (observer), CP, D-8, EAS, FAO, G-11, G-15, G-20, G-77, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IDB, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, MONUSCO, NAM, WCO, WFTU, WHO, WIPO, WMO, WTO.

1.5 OVERVIEW OF DIFFERENT ECONOMIC SECTORS IN INDONESIA

Indonesia is the largest economy in Southeast Asia they survived from the 2008 global recession. The area of Indonesia industry provides employment to 18.6% of the total active population. The main industries that play the role in the economy of Indonesia are oil and natural gas, textiles, clothing, footwear, mining, cement, chemical fertilizers, plywood, rubber, food and tourism. However, there are some obstacles to economic growth is weak development of the healthcare industry and transport, as well as corruption.

Asia includes the population of 60% of the life of the world in 46 different states. It is the economic region the fastest growing in the world. The largest economies in Asia are China, Japan, Russia, India, South Korea, Indonesia and Turkey.

MAJOR SECTORS

Agriculture

The major labour force in Indonesia in engaged in agricultural activities so it can be rightly considered as agrarian economy. In 2009, agriculture sector contributed 14.4% in GDP. They grow food crops, non-food crops, horticulture, animal products, fish products and forest products. Major cultivation of rice and coffee are making Indonesia fourth biggest producer in the world.

Mining

According to the energy and mines ministry, investment in mining sector was US$ 1.2 billion in 2007 and increased to US$ 1.6 billion in 2008. However it is expected that by 2014 its investment will increase up to US$ 123 billion.

Textile and Apparel

Textile and apparel industry is ranked 14th world. Industry was very much affected by global recession of the late 2000s. Around 155 textile production companies went bankrupt in 2009 due to an increase cost of production and enormous inflow of cheap stuff from china.

Tourism

Tourism is the biggest industry in Indonesia. In 2009, 6.45 million visitors came to the country. Tourism contributes 4% to the GDP of the country. The visitors in 2012 were 8.04 million.

1.6 PRESENT TRADE RELATION AND BUSINESS VOLUME OF DIFFERENT PRODUCT WITH INDIA

Bilateral relations between India and Indonesia have traditionally been strong with both nations maintaining cultural and commercial relations. India and Indonesia have agreed to sign the comprehensive economic cooperation agreement to increase trade, investment and economic cooperation and expanded on the bilateral maritime security, law training, joint exercises, the development of military technology and the fight against terrorism. With Singapore being a part of the Greater India civilizing and profit-making region.

India has an embassy in Jakarta and Indonesia operates an embassy in New Delhi. India considers Indonesia as a key member of ASEAN. Today, the two countries have maintained friendly relations and cooperation. India and Indonesia is one of the largest democracies in the Asian region that can be projected in a true democracy. The two countries agreed to establish a strategic partnership. As a fellow Asian democracy that share common values, it is natural for the two countries to maintain and promote a strategic alliance. Indonesia and India are members of the G-20, E7 States, the Non-Aligned Movement and the United Nations.

PRODUCT AND BUSINESS VOLUME

Jakarta, June 26 - Indian companies are interested in investing in various companies in East Java Province in Indonesia, particularly in the steel, textile, education and areas of human resource development, a senior Indian official said.

The Indian Ambassador to Indonesia Gurjit Singh said this to H. Soekarwo, governor of East Java, during a visit to the provincial capital Surabaya, also the second largest city in the country, Singh said that Soekarwo trade delegations from India would include Surabaya as part of their tours to explore better opportunities in the region. The major Indian companies have already made ​​significant investments in East Java, and other plans will be considered, said Singh. India is also offering five scholarships technical education to people of East Java programmers for short-term training in India. The Indian envoy met some senior teachers of universities in East Java to discuss educational cooperation with India.

According to the Embassy of India, bilateral trade increased from $ 4.4 billion in 2005-06 to over $ 16 billion in 2010-11, making Indonesia is an important trading partner for India in ASEAN.

There are about 100,000 people of Indian origin in Indonesia, mostly concentrated in Greater Jakarta, Medan, Surabaya and Bandung regions.

Many Indian nationals are working as engineers, consultants, accountants and bankers in Indonesia. The Indian community is well regarded in Indonesia, and includes individuals holding senior positions in local and multinational companies.

1.7 PESTEL ANALYSIS

POLITICAL ANALYSIS

Indonesia's political system is a constitutional democracy. The current system is the result of various constitutional amendments after the fall of authoritarian President Suharto in 1998. The president is now elected in a general election every five years. The legislature consists of two bodies: the House of Representatives (DPR) and the Regional Representative Assembly (DPD), responsible for dealing with regional affairs. The supreme constitutional body is the People's Consultative Assembly (MPR), including both the DPR and DPD sitting together. The MPR is the final arbiter - after Parliament and the Constitutional Court - constitutional amendments and impeachment proceedings. He often sat until 2004, but is now expected to sit down once during a presidential term unless the country is facing a major political crisis.

The post-independence political landscape was dominated by the presidents Sukarno (1949-1966) and Suharto (1967-1998). Sukarno years were marked by political instability, economic decline and dismantling of the first parliamentary democracy in Indonesia.

The current President Yudhoyono face similar challenges to those faced his predecessors in the post-Suharto era. The need to fight against corruption, FDI flows insufficient, unemployment / underemployment and legal reform is a priority for his government. A key achievement of his presidency so far has been the peace agreement and subsequent peaceful elections in Aceh, ending years of armed conflict. Yudhoyono also said he attaches great importance to the consolidation of the Special Autonomy for Papua and West Papua Act. The army (TNI) is an influential player in Indonesia - mainly because of its territorial command structure - although it no longer has a direct role in political affairs, having lost its reserved parliament seats after October 2004.

Political Trends For 2012

If the representatives of political parties in the Cabinet gave the impression that they support the policy initiatives of the President, they have done little to constrain their colleagues in political parties who sought to harm him in Parliament. Yudhoyono has limited options to deal with this situation because he still needs the support of the political parties to find the necessary compromises to ensure he leaves behind a legacy credible when his presidency ends in 2014.

A corruption case involving bribery of most finance committees of Parliament to appoint Ms. Miranda Goeltom as a Deputy Governor of Bank Indonesia in 2004 has entered a new phase with the recent arrest of businesswoman Nunun Nurbaeti at the end of 2011. Given the fragile foundations of the coalition, there could be a possible revision of the coalition in 2012, initiated by the Golkar and PKS. This is mainly because they hold the advantage, or to use the term Bahasa Indonesia - Berada diatas Angin.

Beyond the national political scene, there are some major political events in 2012 that deserve attention. The first is the election of the governor of Jakarta and Aceh. The first is important because it involves the election of officers of the nation's capital, received wide media coverage, and is a national barometer of other local elections. It will not bode well for the other provinces if the Jakarta race is compromised, either by an inability to resolve election-related conflicts, maintain security and manage the electoral process

ECONOMIC ANAYSIS

Indonesia, a large polyglot nation, experienced an estimated growth of 6.1% and 6.4% in 2010 and 2011 respectively. In 2010, the economy of Indonesia seemed on track for faster growth and better living conditions, but risks remain. The economy continued to gradually strengthen and GDP growth expected for 2011 is 6.4% (Asian Development Bank).

The trade surplus increased slightly, but deficits in services and the income is widening due to higher transportation costs associated with large trade flows and repatriation of profits and dividends. The current account surplus is seen declining to 0.5% of GDP in 2011 and 0.1% in 2012. The overall balance of payments is expected to remain in surplus due to the continuation of entries (but moderator) portfolio and foreign direct investment.

Inflation was about 7% in the first two months of 2011 and is expected to remain relatively high during the first half of this year, before slowing in the second half due to base effects and the expected improvement in national food supply.

A business relationship with Union the European Union is considered the fourth major trading partner. Indonesia has access to the European market using the "generalized system of preferences (GSP)" providing preferential access to goods produced in developing countries. In 2007, Indonesia was one of the main beneficiaries in the world of GPS.

SOCIAL ANALYSIS

Demographic

According to the national census of 2010, the population of Indonesia is 237.6 million, with a high of 1.9% population growth. 58% of the population lives on Java, the most populated island in the world. The population is expected to grow to around 265 million by 2020 and 306 million by 2050.

Indonesia is the country's most populous Muslim-majority world. There are about 300 ethnic groups in Indonesia and 742 different languages. Another important group is Melanesian, who inhabit eastern Indonesia. The largest ethnic group is the Javanese, which covered 42% of the population and culturally and politically dominant, other groups such as Sundanese, ethnic Malays, and Madurese are the largest non-Javanese groups. Society is largely harmonious Indonesia violence as social tensions, religious and ethnic have triggered.

The government officially recognizes only six religions: Islam, Hinduism, Catholicism, Protestantism, Buddhism and Confucianism.

Language

There are more than 700 different languages ​​are spoken in Indonesia. The official language is Indonesian, is universally taught in schools and usually it is spoken by all Indonesian; it is the language of business, media, politics and national education.

Javanese is the most widely spoken as the language of the majority ethnic group.

Culture

Indonesia has about 300 ethnic groups, each with cultural identities and influenced by Indian, Arabic, Chinese and European sources. So it is a very different cultural complex mixture of original indigenous cultures.

Western culture has greatly influenced Indonesia in science, modern technology and entertainment such as television, film and music, as well as the political system and issues. India has notably influenced Indonesian songs and movies. A popular type of song is the Indian rhythmic dangdut, which is often mixed with Arab and Malay folk music.

The most popular sports are badminton and football. Traditional sports like sepak takraw, and bull racing.

Food in Daily Life

Indonesian cuisine reflects regional, ethnic, Chinese, Middle Eastern, Indian and Western influences in daily food quality and quantity.

Rice is the main staple food and is served with side dishes like meat, eggs and vegetables. There are fundamental ingredients like spices, coconut milk, chicken and fish. Women carry towering baskets of fruit on their heads for a temple festival in Bali.

Sometimes rice is not the staple everywhere: in Maluku and parts of Sulawesi it is Sago and in west Timor it is maize (corn) with rice consumed only for ceremonial occasions. Among the Rotinese, palm sugar is fundamental to the diet.

Literacy

Age 15 and over can read and write

total population: 87.9%

male: 92.5%

female: 83.4%

Education is not free; however, it is compulsory for children through to grade 9. Although about 92% of eligible children are enrolled in primary school. About 44% of secondary school-age children attend junior high school, and some others of this age group attend vocational schools.

TECHNOLOGICAL ANALYSIS

Technology development in Indonesia is very fast, even in comparison with other countries such as Japan, the United States, Russia, Germany and other developed countries.

For 2010, the Indonesian government has only allocated Rp 1.9 trillion (about 205 million U.S. dollars) or less than 1 percent of the total government expenditure for research and development. "The government will continue to increase the percentage of the budget to achieve a sufficient number.

We can see how the technological development of North rapid growth in Indonesia, in which many of the son of the nation can earn achievements in it very encouraging, as international robot champion, the construction technology and information and communication.

Technology robotic construction Indonesia and information and communication are the main boom of the economy in both national and regional.

In recent years, the country has pioneered several technologies develop. Technological research institutes to build better infrastructure and more green business. Technological advances have led to a time of rapid change for retailers and consumers in financial transactions hassle and the creation of new products at competitive prices

MOVING INDONESIA TOWARD TECHNOLOGY-BASED BUSINESS

When an Indonesian government agency wanted to develop a more commercial approach to providing such science technology to the private sector, he found a sister in the United States to assist in the transition.

According to a report by the World Bank in Indonesia for years relied on the resources of oil, natural gas and natural forest. In the 1980s, however, Indonesia has begun to focus on the development of technological capabilities as the most promising source of sustainable growth for the future.

As part of this effort, Battelle has a contract with the Agency of Indonesia for the Assessment and Application of Technology in 1997 to work on a project funded by the World Bank multi-year project. Battelle Pacific Northwest manages for the U.S. Department of Energy. In addition to a small core team of project Battelle and laboratory staff, many other Pacific Northwest bring their specific expertise to the project.

The project compares and contrasts the practices and processes with those of Battelle Indonesian agency. "Project staff adapted processes and approaches to business development, public relations, management contracts and intellectual property to adapt to the Agency and to the needs of Indonesia Business Battelle," said Mary Zalesny, project manager for the twinning systems integration project management and business.

One of the main objectives was to guide and support the Indonesian Agency through organizational changes as it began the transition to an organization of service-oriented private sector technology. This piece was to develop a project management plan, a communication plan, and plans for leadership development. The transition assistance also helped the agency through a major organizational restructuring and three changes in its senior management.

If international collaboration on such a major transition was not difficult enough, the project extends over a period of political upheaval in Indonesia

ENVIRONMENT ANALYSIS

Indonesia's large population and rapid industrialization mean serious environmental problems, which are often given a lower priority due to high poverty levels and weak, governance resources. Issues include large-scale deforestation (largely illegal) and related wildfires causing smog in parts of western Indonesia, Malaysia and Singapore heavy, and environmental issues related to the rapid urbanization and economic development, including air pollution, overexploitation of marine resources, waste management and reliable water and wastewater services deforestation and the destruction of peat lands make Indonesia the third largest emitter global greenhouse gas emissions. Habitat destruction threatens the survival of indigenous and endemic species, including 140 species of mammals identified by the World Conservation Union threatened species, and 15 identified as critically endangered, including the Sumatran orangutan.

ENVIRONMENT LAW

Environmental law requires companies to issue an environmental management statement, an effort of Environmental Management - Environmental monitoring reports efforts or assessing the impact on the environment depending on their industry and exposure to the environment. In addition to this requirement, the law provides a new requirement for companies to conduct an environmental risk assessment or to obtain an environmental permit.

Under this law, the environmental permit is a prerequisite for further business license. The Ministry of Environment has produced a draft government regulation on environmental permits, which indicates that there will permit feasibility of environment as well as protection of the environment and allowed intervention. According to the present ministry of the proposed government regulation of the environment on the environmental audit, this obligation does not apply to companies that do not have UKL-UPL. In addition, these companies without UKL-UPL must also develop a document management environment within the period of two years.

LEGAL ANALYSIS

Recent government initiatives have streamlined the regulatory environment for Western companies by relaxing laws governing structures of foreign companies and simplifying the process of forming a company. Despite these initiatives, traditional notaries are vital to the legal and regulatory issues, especially in the conclusion of contracts. Commercial contracts must be considered in their wider cultural significance, and are more likely to be respected, where key relationships are maintained.

Company Law

Ever since independence from Indonesia, the industries and companies mainly have played an important role in the economic growth of Indonesia. There are various regulations that govern the organization of the Indonesian company. Currently, the right of Indonesian business organizations is the main governed by the law of Limited Liability Company. To start a business in Indonesia, it requires Rupiah 20 million as an authorized and issued share capital must be at least 25% of the authorized capital must be fully paid-up capital.

Labour Law

Labour law implies the principal rule for establishing an employment relationship, employment terms and conditions and employment termination. The minimum wage is intended to cover employees working a 40 hours a week in the formal sector i.e. any job sector or industry that is recognized, monitored and regulated by the government. An employee can work a maximum of 40 hours per week allocated in one of the following ways,

7 hours per day / six days per week.

8 hours per day / five days per week.

Rest period for labour is 30 minutes for every 4 hours. Minimum age of worker must not be less than 14 years.

3. Tax System

The taxation system of Indonesia recognizes the economic reality of the majority of the poor and poorest citizens are exempt from almost any taxation. The poverty line in the tax free income Indonesian people also depend regions; there is some disparity between the purchasing power of the rupee between regions and intra-regional trade among large urban cities and small. The income tax is subject to the regional government regulations defined by the economic realities of this particular area.

Tax Bands

(Table – 3)

Band

Annual Income

Rate

Tax free

Up to Rp 24000000

0

Band I

Rp 24000000 to Rp 50000000

5%

II

Rp 50000000 to Rp 250000000

15%

III

Rp 250000000 to Rp 500000000

25%

IV

Above 500000000

30%

Although rates are regionally variable, for the sake of illustration income basically employs a progressive rate, commencing at 10% gross salary income per annum, sliding to 30% p.a.