Indonesia's Economy
Economy - overview:
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Indonesia, a vast polyglot
nation, has weathered the global financial crisis relatively
smoothly because of its heavy reliance on domestic consumption as
the driver of economic growth. Although the economy slowed
significantly in 2009 from the 6%-plus growth rate recorded in 2007
and 2008, by 2010 growth returned to a 6% rate. During the
recession, Indonesia outperformed its regional neighbors and joined
China and India as the only G20 members posting growth. The
government made economic advances under the first administration of
President YUDHOYONO, introducing significant reforms in the
financial sector, including tax and customs reforms, the use of
Treasury bills, and capital market development and supervision.
Indonesia's debt-to-GDP ratio in recent years has declined steadily
because of increasingly robust GDP growth and sound fiscal
stewardship. Indonesia still struggles with poverty and
unemployment, inadequate infrastructure, corruption, a complex
regulatory environment, and unequal resource distribution among
regions. YUDHOYONO's reelection, with respected economist BOEDIONO
as his vice president, suggests broad continuity of economic policy,
although the start of their term has been marred by corruption
scandals and the departure of an internationally respected finance
minister. The government in 2010 faces the ongoing challenge of
improving Indonesia's insufficient infrastructure to remove
impediments to economic growth, while addressing climate change
mitigation and adaptation needs, particularly with regard to
conserving Indonesia's forests and peatlands, the focus of a
potentially trailblazing $1 billion REDD+ pilot project.
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GDP (purchasing power parity):
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$1.033 trillion (2010 est.)
country
comparison to the world: 16
$974.6 billion (2009 est.)
$932.6 billion (2008 est.)
note: data
are in 2010 US dollars
|
|
GDP (official exchange rate):
|
$695.1 billion (2009 est.)
|
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GDP - real growth rate:
|
6% (2010 est.)
country
comparison to the world: 39
4.5% (2009 est.)
6% (2008 est.)
|
|
GDP - per capita (PPP):
|
$4,300 (2010 est.)
country
comparison to the world: 157
$4,100 (2009 est.)
$3,900 (2008 est.)
note: data
are in 2010 US dollars
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|
GDP - composition by sector:
|
agriculture: 14.9%
industry: 46.8%
services: 38.3%
(2009 est.)
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Labor force:
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114.9 million (2009 est.)
country
comparison to the world: 5 |
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Labor force - by occupation:
|
agriculture: 42.1%
industry: 18.6%
services: 39.3%
(2005 est.)
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Unemployment rate:
|
7.1% (2010 est.)
country
comparison to the world: 74
8.1% (2009 est.)
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Population below poverty line:
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13.3% (2006)
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Household income or
consumption by percentage share:
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lowest 10%: 3%
highest 10%: 32.3%
(2006)
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Distribution of family income
- Gini index:
|
39.4 (2005)
country
comparison to the world: 66
37 (2001)
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Investment (gross fixed):
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30.8% of GDP (2009 est.)
country
comparison to the world: 14 |
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Budget:
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revenues: $117.2
billion
expenditures: $127.4
billion (2009 est.)
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Public debt:
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26.4% of GDP (2010 est.)
country
comparison to the world: 91
27.4% of GDP (2009 est.)
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Inflation rate (consumer
prices):
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5.2% (2010 est.)
country
comparison to the world: 148
4.8% (2009 est.)
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Central bank discount rate:
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6.46% (31 December 2009)
country
comparison to the world: 40
10.83% (31 December 2008)
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Commercial bank prime lending
rate:
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14.5% (31 December 2009 est.)
country
comparison to the world: 57
13.6% (31 December 2008 est.)
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Stock of narrow money:
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$65.47 billion (31 December 2010
est)
$49.63 billion (31 December 2009
est)
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Stock of broad money:
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$276.8 billion (31 December 2010
est.)
$205.8 billion (31 December 2009
est.)
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Stock of domestic credit:
|
$253.1 billion (31 December 2010
est.)
country
comparison to the world: 37
$192.3 billion (31 December 2009
est.)
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Market value of publicly
traded shares:
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$178.2 billion (31 December 2009)
country
comparison to the world: 36
$98.76 billion (31 December 2008)
$211.7 billion (31 December 2007)
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Agriculture - products:
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rice, cassava (tapioca), peanuts,
rubber, cocoa, coffee, palm oil, copra; poultry, beef, pork, eggs
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Industries:
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petroleum and natural gas,
textiles, apparel, footwear, mining, cement, chemical fertilizers,
plywood, rubber, food, tourism
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Industrial production growth
rate:
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4% (2009 est.)
country
comparison to the world: 85 |
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Electricity - production:
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134.4 billion kWh (2007 est.)
country
comparison to the world: 27 |
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Electricity - consumption:
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119.3 billion kWh (2007 est.)
country
comparison to the world: 28 |
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Electricity - exports:
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0 kWh (2008 est.)
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Electricity - imports:
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0 kWh (2008 est.)
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Oil - production:
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1.023 million bbl/day (2009 est.)
country
comparison to the world: 22 |
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Oil - consumption:
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1.115 million bbl/day (2009 est.)
country
comparison to the world: 18 |
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Oil - exports:
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85,000 bbl/day (2008 est.)
country
comparison to the world: 69 |
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Oil - imports:
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671,000 bbl/day (2007 est.)
country
comparison to the world: 20 |
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Oil - proved reserves:
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4.05 billion bbl (1 January 2010
est.)
country
comparison to the world: 28 |
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Natural gas - production:
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70 billion cu m (2008 est.)
country
comparison to the world: 12 |
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Natural gas - consumption:
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36.5 billion cu m (2008 est.)
country
comparison to the world: 23 |
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Natural gas - exports:
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33.5 billion cu m (2008 est.)
country
comparison to the world: 7 |
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Natural gas - imports:
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0 cu m (2008 est.)
country
comparison to the world: 174 |
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Natural gas - proved reserves:
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3.001 trillion cu m (1 January
2010 est.)
country
comparison to the world: 14 |
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Current account balance:
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$8.532 billion (2010 est.)
country
comparison to the world: 25
$10.75 billion (2009 est.)
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Exports:
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$146.3 billion (2010 est.)
country
comparison to the world: 30
$119.5 billion (2009 est.)
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Exports - commodities:
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oil and gas, electrical
appliances, plywood, textiles, rubber
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Exports - partners:
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Japan 17.28%, Singapore 11.29%,
US 10.81%, China 7.62%, South Korea 5.53%, India 4.35%, Taiwan
4.11%, Malaysia 4.07% (2009)
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Imports:
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$111.1 billion (2010 est.)
country
comparison to the world: 30
$84.35 billion (2009 est.)
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Imports - commodities:
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machinery and equipment,
chemicals, fuels, foodstuffs
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Imports - partners:
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Singapore 24.96%, China 12.52%,
Japan 8.92%, Malaysia 5.88%, South Korea 5.64%, US 4.88%, Thailand
4.45% (2009)
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Reserves of foreign exchange
and gold:
|
$83.58 billion (31 December 2010
est.)
country
comparison to the world: 16
$66.12 billion (31 December 2009
est.)
|
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Debt - external:
|
$155.9 billion (31 December 2010
est.)
country
comparison to the world: 30
$156.7 billion (31 December 2009
est.)
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Stock of direct foreign
investment - at home:
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$81.21 billion (31 December 2010
est.)
country
comparison to the world: 41
$72.84 billion (31 December 2009
est.)
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Stock of direct foreign
investment - abroad:
|
$33.71 billion (31 December 2010
est.)
country
comparison to the world: 36
$30.18 billion (31 December 2009
est.)
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Exchange rates:
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Indonesian rupiah (IDR) per US
dollar - 9,169.5 (2010), 10,389.9 (2009), 9,698.9 (2008), 9,143
(2007), 9,159.3 (2006)
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ECONOMIC GROWTH
AND STATE FINANCE
After an average
annual rate of between 5% and 7% during a long-term growth in the
last two decades, Indonesia has been hard hit during the recent
wave of the Asian monetary crisis. With an economic growth of 4.7%
in 1997, the 1998/99 State Budget envisages a minus 12% economic
growth with an inflation of 66%, which gradually developed into an
economic crisis. The country's economic order and national
financial institutions proved unable to with-stand the violent
tremors against the nation's economic foundations. It is no
exaggeration to say that the achievements of the national
development of the last three decades have been wiped out by a
crisis that took place for only several months, and worsened when
the local currency lost its value. The Government was, in fact,
caught by surprise with the unbelievable large private sector
debts which had accumulated in the last five years.
The Central Bureau
of Statistics predicted that the country's GDP would shrink by
10.1% this year based on 1993 constant prices. The construction
sector was the worst hit by the recession, contracting by 27.16%.
The manufacturing sector followed with 18.58%, hotels and
restaurants 14.38%, financial services 11.1%, mining 9.65%, other
services 3.7% and transportation and communication 2.5%. Only
agriculture and utilities (electricity, gas and clean water)
booked a positive growth during the first quarter of 1998,
respectively by 28.47% and 7.1%.
It is also reported
that the country's month-by-month inflation rate rose 05.24% in
May, bringing the total increase in the consumer price index to
40.06% in the first five months of 1998. Inflation is predicted to
reach 80% to 85% this year. The main driver of inflation during
the first five months of this year was the prolonged monetary
crisis, compounded by bad farm harvests and increasing fuel
prices.
Food prices rose by
3.90%, processed food and cigarette prices 4.00%, housing prices
increased 4.14%, clothing 4.53%, health 2.4%, education and
recreation 1.41%, transportation and communication 17.25%.
In international
trade Indonesia noted a surplus of US$5.09 billion during the
first quarter of this year, with exports reaching US$12.29 billion
and imports US$7.2 billion. Exports declined by 0.9% during the
same period to US$12.19 billion, with non-oil exports rising 9.5%
to US$10.02 billion and oil and gas exports falling 30.17% to
US$2.27 billion. In 1997/98 the country's total exports reached
US$56.2 billion with non-oil exports accounting for US$45.9
billion and oil and gas exports US$10.2 billion. At the same time
imports accounted for US$38.6 billion and oil and gas imports
US$4.1 billion.
To recover the
deteriorating economic situation the Indonesian Government has
launched and implemented all economic reform programs, including a
50-point program of reforms and its extended arrangement as agreed
with the International Monetary Fund (IMF) that offered US$43
billion in loans. In addition, it also adopted a strategy to: (1)
stabilize the rupiah at a level more in line with the underlying
strength of the Indonesian economy, including a tight monetary
policy, (II) strengthen and accelerate its strategy for
restructuring the banking system; (III) strengthen implementation
of the structural reforms that will create the foundations for a
more efficient and competitive economy; (IV) provide a framework
for comprehensively addressing the debt problems of private
corporations; and (V) restore trade financing to a normal basis,
allowing domestic production and especially the export sector to
recover.
It is expected that
the Government's bold policy program will be reinforced by
financial support from the international community, including
trade financing and the provision of food and medical aid.
Furthermore,
another agreement was signed with the IMF, the fourth in nine
months of 1998, promising yet more reforms in a bid to arrest the
country's economic turmoil. The latest letter of intent is far
less restrictive than previous ones, allowing the government to
maintain subsidies for food, fuel, electricity and other spending
on "social safety net" programs to help the poor cope
with the crisis.
The high interest
rate policy will be continued to ensure the quick reduction of
inflation and the strengthening of the rupiah.
BALANCE OF
PAYMENTS
The balance of
payments in fiscal year 1997/98 was heavily affected by the
outflow of net capital and the increase of debt-service
requirements.
Indonesia's total
exports in fiscal year 1997/98 was US$ 56.2 billion, growing only
7.9% compared to that of the previous fiscal year. Non-oil and gas
exports accounted for $45.9 billion, or an increase of 17.0%; and
oil and gas exports Rp 10.2 billion, down by 19.8% due to the
decreasing world demand and oil prices on the international
market. The contribution of non-oil and gas to the country's total
export rose by 81.8% in fiscal year 1997/98 from 75.5% in fiscal
year 1997/98.
At the same time,
its total imports was US$42.7 billion, or down by 6.8%. The
decrease was chiefly caused by the slowing down of demand for
imported goods during the current economic crisis. Non-oil and gas
imports decreased by 6.1% to US$38.6 billion, and oil and gas
imports by 13.0% to US$4.1 billion.
Net foreign
exchange spending for services increased slightly to US$15.2
billion in fiscal year 1997/98 from US$14.3 billion in fiscal year
1996/97. The growing transaction deficit for services was
attributed to transaction deficit for oil and gas services which
increased by US$1.1 billion.
Meanwhile, inflow
of net capital noted a substantial deficit of US$7.6 billion in
1997/98. It was chiefly caused by the outflow of private net
capital that noted a deficit of US$11.8 billion in 1997/98 along
with the slowing down of the country's economic performance.
Encouragingly, the inflow of government net capital noted a
surplus of US$ 4.2 billion.
All developments
mentioned above have caused the country's foreign exchange
reserves to decrease sharply to US$16.6 billion (account based on
Gross Foreign Assets), making it capable of financing imports for
4.6 months.
Foreign Reserves
(in million dollars)
|
|
July
24
|
July
31
|
August
7
|
|
Gross
foreign assets
|
19,536.6
|
19,527.4
|
19,403.3
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Liquid
reserves*
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----
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----
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----
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Other
reserves **
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----
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----
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----
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Gross
foreign liabilities
|
4,896.4
|
4,896.4
|
4,896.4
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Net
forward positions
|
0.0
|
0,0
|
0.0
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Reserve
against foreign
currency deposits
|
422.2
|
433.3
|
425.4
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Net
international reserves
|
14,218.0
|
14,197.7
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14,081.5
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* Liquid gross foreign assets include gold, foreign securities,
offshore deposits and special drawing rights.
** Other gross foreign assets include export drafts, deposits in
the branches of domestic banks in offshore and deposits parked at
foreign banks to guarantee letters of credit.
GOVERNMENT
BUDGET
Due to the sharp
depreciation of the rupiah, rising inflation and lower
international oil price that caused the weakening of the country's
economic performance, the Indonesian Government had to revise its
budget twice from the original budget issued early January. The
final revised version of the 1998/99 State Budget is expected to
accommodate further economic deterioration and a huge subsidy
commitment.
Finalized after
consultations with the IMF, the new budget estimates an average
exchange rate for the rupiah at Rp 10,600 to the dollar over the
fiscal year. The oil price assumption is set at US$13 per barrel.
The total budget
for 1998/99 is enlarged to Rp 227.1 trillion, an 88.2% increase
from the January version of Rp142.7 trillion. The bulk of the
budget is aimed at financing the social safety net to help the
poor in surviving the crisis and debt repayment.
REVENUES
Revenues from the
non-oil and gas sector is envisaged at Rp 99.6 trillion, primarily
on the back of larger tax revenues from the export of crude palm
oil (CPO).
Revenue from oil
and gas is expected at Rp 49.71 trillion. It is worth noting that
Indonesia is a major oil exporter.
Meanwhile foreign
aid revenue is envisaged at Rp 127.8 billion.
EXPENDITURES
Government spending
is divided into two broad categories in the budget; routine
expenditures and development expenditures.
Routine expenditure
is envisaged at Rp 61.6 trillion, up from the previous Rp 12.3
trillion due to a rise in the fuel subsidy and to anticipate
increasing subsidies for basic food items. In fiscal year 1997/98
routine expenditure was earmarked for Rp 84,606.2 billion.
Development
expenditure, meanwhile, is allocated Rp 92.68 trillion, up from
the earlier amount of Rp 71.6 trillion.
DEBT
Indonesia's total
external debt outstanding at the end of March 1998 was US$138.018
billion up from US$108.7 billion at the end of March 1997.
The total amount of
government external debt outstanding, at the same time, amounted
to US$54.159 billion and private debt outstanding US$83.859
billion.
The decline in the
rupiah's value by almost 80% since July 1997 had caused the value
of the country's overseas private-sector debt, in particular, to
sky-rocket. To deal with the debt problems the Government
established the Indonesia Debt Restructuring Agency (INDRA).
In the 1998/99
budget, the Government allocated Rp 94.5 trillion for government
debt repayment and Rp 77.55 trillion for foreign debt servicing,
including about Rp 46.51 trillion for principal repayment and more
than Rp 31 trillion for interest payment.
Revised Balanceof
Payments Projections 1998/1999
(in billion US Dollars)
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OLD
|
NEW
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Merchandise
exports
|
60.6
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56.5
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Merchandise
imports
|
-
42.4
|
- 37.9
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Trade
balance
|
18.2
|
18.6
|
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Services
|
15.5
|
17.2
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Current
Account balance
|
2.6
|
1.4
|
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Capital
flow Government receipts
|
9.1
|
19.4
|
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Government
debt payments
|
- 4.9
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- 4.2
|
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Other
|
- 5.6
|
11.3
|
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Capital
Account balance
|
- 1.4
|
3.9
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Overall
balance
|
1.1
|
5.3
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Note: Some figures don't add up due to rounding up.
Source: From Minister of Finance's Statement at the House of
Representatives, July 16, 1998
CURRENCY AND
FOREIGN EXCHANGE
Indonesia's
currency is the rupiah. Notes come in denominations of 50,000,
20,000, 5,000 1,000, 500, and 100 while coins come in
denominations of 1,000, 500, 100, 50, 25, 10 and 5.
The system of
liberal foreign exchange based on the price flow of foreign
exchange controls is continuously maintained. However, regulations
have an impact on the exchange system, say, for example, only
foreign exchange banks are authorized to execute foreign exchange
transaction related to the import and export goods.
Money in supply or
narrow money (MI) grew at an annual average of 26.9%, from Rp 37.9
trillion in March 1994 to Rp 98.3 trillion in March 1998. During
fiscal year 1997/98 alone it increased sharply by 54.6%.
Meanwhile, liquidity or broad money (M2) swelled by 31.9% on
average per year. In fiscal year 1997/98 broad money grew by 52.7%
due largely to the decrease of rupiah exchange rate.
BANKING AND
OTHER FINANCIAL INSTITUTIONS
The Indonesian
banking sector has been badly hit by the rupiah's sharp plunge
against the US dollar. The rupiah's fall has multiplied the value
of the banks' foreign debts as well as the value of their dollar
loans, which mostly fall under the non-performing category due to
the real sector's bleak performance and their failure to make the
necessary credit risk assessments.
The banking crisis
has seen a drying out in overseas credit for local exporters to
import their raw materials, while domestic financing is virtually
nonexistent since local banks are now unable to risk more
non-performing debts. The national banking industry has also
worsened because of massive outflows and worsening corporate woes.
In a bid to revive
the lackluster banking industry the Government has subsequently
taken the necessary steps, including the liquidation of 16 ailing
banks out of 237 banks (in fiscal year 1996/97).
Such a bold step
was followed by a move to restructure the ailing banking sector,
and for that purpose the government established the Indonesian
Bank Restructuring Agency (IBRA).
Charged with
restructuring and speeding up the recovery of Bank Indonesia's
liquidity credits already injected into problem banks, IBRA has
intervened in the 54 banks whose emergency borrowings from Bank
Indonesia surpassed 200% of their capital. Another important move
taken by IBRA was to suspend the rights of owners and management
of seven banks having borrowed more than Rp 2 trillion from Bank
Indonesia (BI), comprising 75% of the total of BI lending. IBRA
also took control of seven banks that have borrowed more than 500%
of their total assets from BI with a right to immediately transfer
their assets and abilities to other banks, while intensifying its
control over the remaining IBRA banks by issuing government
contracts through these banks and preparing to remove their
foreign exchange licenses.
In another
concerted effort to speed up the restructuring process of the
country's ailing banking industry, the government set a minimum
paid-up capital of Rp 250 billion (US$16.2 million) by the end of
1998 for newly established banks, lower than the previous tough
minimum paid-up capital adequacy ratio (CAR) for banks
respectively to 4% by the end of 1998, 8% by the end of 1999 and
10% by the end of 2000. The previous CAR requirements were 8% by
the end of 1998, 10% by the end of 1999 and 12% by the end of
2000.
More sweeping taken
by the Government was to suspend the operation of seven ailing
banks, take over the management of seven additional banks deemed
to be unsound under the IBRA, and placing 40 banks (including
three state-owned banks and 11 provincial development banks) under
its supervision.
It is expected that
by consolidating more banks under IBRA, the government could merge
their operations under its control and reduce them to a manageable
number.
The last positive
move taken by the government to freeze, merge and nationalize 11
of the country's weakest banks was lauded by the IMF. The move,
which included nationalizing the country's highest private bank,
Bank Central Asia (BCA)- has been the clearest sign so far that
the government through IBRA is ready to take tough measures.
Meanwhile, four state banks merged into Bank Mandiri, were Bank
Exim, Bank Bumi Daya, Bank Dagang Negara and Bapindo.
The government
would also submit to parliament a law eliminating existing
restrictions on foreign ownership of banks.
BANK INDONESIA
Bank Indonesia is
the country's central bank. Pursuant to the Central Bank Act of
1968, its major functions are to issue currency, devise and
implement the monetary policy, act as the government's banker, and
supervise and regulate financial institutions. Thus, it is the
sole issuer of the country's currency, i.e. the rupiah. It holds
the official international reserves of the economy.
It regulates the
liquidity position of banks by adjusting the minimum liquidity
ratio and the minimum reserve requirements that all deposit-money
banks are required to maintain. It is the banker of last resort in
the domestic banking system.
Bank Indonesia is
also in charge of preparing and implementing the monetary policy
under the direction of the Economic Stabilization Council, a
government advisory body presided over by the President.
Directly
responsible to the Government, BI is supervised by a commissioner
appointed by the president, and is required to submit annual and
supplemental budgets to the government for approval. The governor
of the banks and his seven managing directors are appointed by the
President for a five year tenure.
STATE OWNED
BANKS
The number of
state-owned banks shrank from the previous five (5) banks
authorized to handle foreign exchange to only two (2) BNI (Bank
Negara Indonesia), the largest of the banks in terms of
assistance, and BRI (Bank Rakyat Indonesia), since BDN (Bank
Dagang Negara), BBD (Bank Bumi Daya) and Bank Exim (Bank Eskpor
and Import) have been merged into Bank Mandiri. In addition the
country has also a savings bank, Bank Tabungan Negara (BTN) and
Bapindo (also merged into Bank Mandiri) and 27 Regional
Development Banks, with thousands of bank offices.
NATIONAL AND
FOREIGN PRIVATE BANKS
As mentioned
earlier a number of private ailing banks have been liquidated,
nationalized and/or put under the supervision or management of
IBRA.
There are also
several foreign banks operating in Indonesia, including Bank of
America, Hong Kong and Shanghai Bank, Bank of Tokyo, Bangkok Bank,
Chase Manhattan Bank, Swiss Bank, ABN-AMRO Bank etc.
THE INVESTMENT
COORDINATING BOARD
The Investment
Coordinating Board (BKPM) is a non-department government agency
serving under and directly responsible to the President of the
Republic of Indonesia. It is led by a chairman who is also
minister of state for investment promotion and coordination.
Its function is to
formulate government policies with respect to investment,
excluding those of oil, gas, banking, insurance, non-bank
financial institutions and leasing, in processing investment
implementation.
The agency is
responsible not only for the planning and administration of
investment but also for assisting the investors to find feasible
projects and suitable local partners, as well as overcoming
problems that might occur during implementation stages.
BKPM is the central
point of investment authority and has since the end of 1977 been
truly a one-stop investment agency. In the bid for approvals,
licenses and permits required to establish and expand production
facilities in the country, receiving fiscal facilities, grants and
other incentives, the investors deal with this agency, except for
forestry and mining projects. It has its main office in Jakarta
and 27 regional offices in the provinces, each under the direction
of the provincial governor to coordinate local investment in their
respective area. The agency has representative offices in Paris,
Frankfurt and New York.
FOREIGN AND
DOMESTIC INVESTMENT
Foreign investment
is known in Indonesia as Penanaman Modal Asing (PMA), and domestic
investment is known as Penanaman Modal Dalam Negeri (PMDN).
The modern era of
investment in the country was introduced with the enactment of the
Foreign Investment Act of 1967 amended by Act No. 11 of 1970), and
the passage of Domestic Investment Act of 1968 (amended by Act No.
12 of 1970).
In accordance with
the economic reform and restructure the Government issued
Regulation No. 16, 1998 (amended Regulation No. 2, 1996)
concerning Foreign Investment Companies in Export and Import
activities. This act gives more opportunities to foreign
investment companies to take part as distributor or retailer in
national import-export.
Higher production,
improved industrial structure, new employment opportunities,
equitable distribution of income, utilization of human and natural
resources, promotion of exports, and environmental conservation
are set to be the country's basic investment goals. Parallel with
these, policies on investments put more emphasis on industries
that produce capital goods, intermediate products and raw
materials needed to establish a strong foundation for accelerating
the industrial growth.
Special priority
has been given to investments outside Java, particularly the
country's eastern part which includes Kalimantan, Sulawesi,
Nusatenggara, East Timor, Maluku and Irian Jaya in efforts to
promote a more even distribution of investments and simultaneously
to boost economic activities in those less-developed regions.
Keen interest on
investment in Indonesia can be seen from the high growth of
investment realization. In 1995, for instance, the formation of
gross domestic product permanent capital was 13.8 percent, while
it was 14.5 percent in 1996. Nevertheless, due to the economic
crisis, investment value in 1998 is estimated to decrease sharply.
The approved
projects of foreign and domestic investment in fiscal year 1997/98
were expected to create jobs for 682,000 people.
FOREIGN
INVESTMENT
To invest in
Indonesia, foreign investors should first look at the so-called
"Negative List of Investment" (DNI) that contains the
business sectors absolutely closed and still regulated for
investment entries. The regulated sectors in this case can be
entered by investors if certain requirements are satisfied, such
as export-oriented projects, partnership with state owned
companies, technology transfer, cooperation with small-scale
business holders, etc.
Foreign companies
can invest and operate in Indonesia either independently or in
joint-ventures with local partners with the approval of the
government for a maximum period of 30 years (extendable).
In fiscal year
1997/98 approved foreign investments from Asia and Europe
accounted for 4.3 percent and 35 percent respectively.
Some 59.1 percent
of the total foreign investment value went to the processing
industry sector such as chemicals, food, and non-steel minerals.
In fiscal year
1997/98 the province of West Java, Jakarta, Riau, and East Java
dominated investments by 28.5 percent, 21 percent, 18.9 percent,
and 12.4 percent respectively.
DOMESTIC
INVESTMENT
By sector, the
processing industry was still dominant by accounting for some 59.0
percent of the total approved domestic investment in fiscal year
1997/98. Meanwhile by location, West and East Java accounted for
some 31.9 percent and 11.0 percent respectively of the total
domestic investment value during fiscal year 1997/1998.
COOPERATIVES
Cooperatives which
developed in almost all regions of Indonesia have become business
institutions which strengthen the people's economy and increased
the welfare of the members and the surrounding area. About 4,700
cooperatives have developed middle and big-scale businesses with a
value of over Rp1 billion per year.
Development
policies of cooperatives are realized through the following
programs:
EDUCATION
TRAINING AND INFORMATION OF COOPERATIVES
The main program is
aimed at increasing the quality of entrepreneurship,
professionalism, creativity and the capability of the members,
organizers, employees and consultants of cooperatives. The
capability of managers in applying, utilizing and developing
science and technology is also enhanced.
To support the
development of professional cooperatives, in 1997/98 (the fourth
year of Repelita VI), 7,169 organizers, managers, employees and
cadres, and field consultants (PKL) of cooperatives were trained.
The program also trained 10,900 KUDs (Village Unit Cooperatives)
managers and paid for comparative studies of 9,400 KUD organizers.
The GNMMK (National Movement to Socialize and Culturize
Entrepreneurs) program trained 707,000 people including
cooperatives members and the public.
Until 1997/98,
increasing business productivity had involved 266,200 groups of
cooperatives.
IMPROVING
FINANCIAL FUNDING INSTITUTIONS
This program is to
increase the capability of cooperatives in utilizing the funds to
develop a healthy capital structure; therefore, self funding
especially from the members' mortgage and other sources, including
banking credit should be sought.
In 1997, the
mortgages of cooperative members amounted to Rp4.1 trillion or
27.6% higher compared to that in the previous year. The amount of
the mortgages was 72.9% of the cooperatives working capital or an
increase of 70.7% compared to that of the previous year.
Meanwhile, in 1997 the cooperatives working capital increased
23.7% compared to that of the previous year.
In 1997, the distribution of credit
for members of premier cooperatives (KKPA) amounted to Rp1,488.1
billion or an increase of 41.4% compared to that in 1996. To
support business activities of cooperatives which are unable to
provide collateral or credit guaranty, the cooperatives finance
development institution (PKK) grants aid.
In an effort to support small
business especially in villages, cooperatives channel credit as
working capital under the simple condition of small vendor credits
(KCK) amounting to Rp296,999.4 million. Until 1997, 6,478
cooperatives channeled KCK credits worth Rp297.0 billion, while
17,906,800 clients received KCK credits.
The Cooperatives Unit
Savings/Cooperative Savings (USP/KSP) as finance institutions have
grown and in 1997 the 39,700 units were worth Rp5.4 trillion.
EXPANSION OF
COOPERATIVES
This program
promotes services to members, such as business promotion,
information on business opportunities and marketing, develop a
marketing network, trade missions, provide marketing facilities
and infrastructure, give guidance and market consultation, as well
as intensification of the distribution system.
Until 1997/98,
marketing facilities and infrastructure, especially in the least
developed areas, in the form of small shop selling complete daily
necessities (waserba) grew to 21,000 units. In 1997/98, the number
of cooperatives which manage waserba and cooperative savings was
20,952 units.
In cooperation with
PLN (the State-owned Electricity Company), in 1997/98, 4,001
cooperatives were active in marketing electricity services in the
villages or an increase of 9.4% compared to that in the previous
year to 15,534,000 houses in 36,006 villages or an increase of
17.2% and 25.8% compared to that in 1996/97.
COOPERATION AND
EXPANSION OF COOPERATIVE UNDERTAKINGS
This program is
aimed at enhancing the activities of cooperatives effectively and
efficiently, both in the institution and business aspects. The
program covers the cooperative undertaking network (JUK) which is
developed through distribution and marketing, partnership between
cooperatives with the private sector and with state-owned
companies (BUMN), as well as through the sale of shares in private
companies to cooperatives.
In the framework of
enhancing participation of big regional entrepreneurs, the
national partnership program began to extend their scope into some
districts. Until 1997, the number of cooperatives and small
entrepreneurs which participated in this program was 15,900 units,
and 27,900 people respectively with a value of Rp1.6 trillion. In
1997/98, some 221 private companies had sold 168.1 million of
their shares with a value of Rp135.5 billion to 3,506
cooperatives.
INTENSIFICATION
OF COOPERATIVE INSTITUTION
The program aims to
organize and strengthen cooperatives institutions in order to make
the movement comply with the dynamic environment. In 1997/98,
there were 52,100 cooperatives consisting of 8,500 KUDs and 43,600
non-KUDs. In 1997/98, the number of cooperatives increased by
3,000 units or about 6.1% followed by an increase of 1,760 members
or 6.4% compared to that in the previous year.
COOPERATIVES
DEVELOPMENT IN LEAST DEVELOPED AREAS
This program is
meant to increase the quality of services to cooperative members
and the community in the least developed areas.
Until 1997/98,
1,636 TPK-KUDs (Place of Cooperatives Services-Village Unit
Cooperatives) have been built, 2,353 shops selling complete daily
necessities (waserba) managed by KUDs and supported by
professional self-supporting workers (TKMP).
INFORMATION AND
RESEARCH
In 1997/98,
improvement of the cooperatives information system on cooperative
institution and undertakings covered the basic data system of
cooperatives and small entrepreneurs.
In 1997/98 various
researches were done on the policy and strategy to develop
cooperative and small and medium-scale entrepreneurs and to
strengthen the people's economy. Research also covered cooperation
with other cooperatives and small-scale business at home and
abroad, the role of cooperatives in developing an integrated
economic growing area (KAPET), development of the rural industry
pattern through cooperatives and small-scale business in facing
GATT and APEC.
YOUTH AND WOMEN
IN COOPERATIVES
In 1997/98, youths
were trained and imbued with the pioneering spirit and business
skill as managers and members of youth cooperatives, including
cooperatives of Islamic Boarding Schools and encouraged to become
businessmen at youth and college cooperates.
Improving of
knowledge and skill, as well as the broadest possible
opportunities are provided for women to participate actively in
cooperatives. During four years of Repelita VI, 11,200 managers
and members of women cooperatives in 27 provinces received
training.
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Information provided by the Directorate
of Foreign Information Services, Department of Information, Republic of
Indonesia.
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