Indonesia's Growing Economy

Indonesia's economic growth in the last quarter beat expectations and by early next year Indonesia will have one of the eleven largest economies in the world, such economic growth has become common place as Brazil’s economy recently passed that of Great Britain and recently its economic growth beat forecasts. So although Indonesia's economic growth has been slower than that of China’s much of it has been driven by internal demand, with Indonesia having a greater domestic consumption that most other Asian countries. This means; first Indonesia has been able to beat growth forecasts even as most countries around them (Including China) have had lower growth numbers, second Indonesia is less likely to experience a major crash in the immediate future than those whose growth has been primarily from external sources, and perhaps most important Indonesia’s lower classes are likely to see more long term benefit from the growing economy as retail and service businesses put pressure on each other and manufacturers to increase employee wages. This has helped to bring Indonesia’s unemployment down by 25% over the last eight years. Still with their large populations countries such as Indonesia still have a long ways to go towards seriously alleviating poverty.

Challenges Indonesia Faces

1-Economic Disparity. Concerns abound that Indonesia’s growing economy is creating greater inequality abound as the 80/20 rule applies there as it does everywhere. Part of the problem which Indonesia faces in this is that it’s bureaucracy is set up so that much of the government's welfare programs go to the wealthiest households rather than the poorest. The World Bank found for example that 40% of all oil subsidies go to the wealthiest 10% of households http://www.worldbank.org/en/news/2012/04/04/indonesia-economic-quarterly-redirecting-spending.

 2-Aging Infrastructure One of the biggest challenge Indonesia runs into is that it’s infrastructure is already overburdened and so can’t continue to support the nation's current growth rate for long. New bridges, telecommunications and roads are needed in order to expand the country's opportunity to pick up additional factory jobs and to expand its retail and services.

3-Dutch Disease Another major challenge facing Indonesia is that it’s great abundance of natural resources means that many of it’s best and brightest as well as a lot of foreign investment seek ways to earn money from these limited resources which means that Indonesia does suffer some from the so called ‘Dutch Disease.” This restricts much of Indonesia’s economic growth in part to the limited growth of it’s commodities industry.

4-Over burdensome Bureaucracy Indonesia is considered one of the worst countries in which to start a business because of the many hoops entrepreneurs must jump through and it’s sprawling, over burdensome bureaucracy which faces many corruption and efficiency problems.

What Indonesia needs to do to improve it’s economy.
When watching for positive signs of future growth in Indonesia one should look for the following things to be happening.

1-Position itself to take advantage of changing China China’s income is double that of Indonesia’s which means that over time it will be much better for businesses to manufacture their products in Indonesia. Because of this Indonesia must begin working to not only attract manufacturers but should prepare itself to better handle new manufacturing companies.

2-Reduce bureaucratic barriers Right now many entrepreneurs likely keep their businesses small in order to avoid notice so that they can bypass government barriers to doing business. Worse still many other people who would start businesses never do. Given the importance of retail to Indonesia’s economy reducing the barriers to these service and retail businesses, as well as to investment in larger manufacturers is perhaps the most important thing which Indonesia can do to improve its economy. To do this it must be willing to redo the way it’s government bureaucracies are structured in order to shrink them and streamline them.

 3-Stricter anti-corruption laws Indonesia needs stricter laws to find and punish corruption so that the government and the businesses get to keep the money which is due them, rather than corrupt bureaucrats taking bribes.

4-Encourage investment which is unrelated to the commodities industries. Indonesia needs to begin to begin to create a better system for investing in something other than it’s commodities industries which are by and large limited in their growth.

5-Build infrastructure in telecommunications and transportation. Indonesia needs to start choosing areas which are likely to expand in order to better focus its funds on improving infrastructure within them so that they are ready to support greater manufacturing capacity.

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Above Picture Courtesy of Wikipedia