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Indonesia’s Economy

The Indonesian economy is the largest in Southeast Asia and the 16th largest in the world, with annual gross domestic product (GDP) valued at approximately USD940.9 billion (2016). In 2014, the services sector was the most prominent employer in Indonesia, accounting for 45 per cent of local workers (compared to only a third in 1990). This was followed by the agriculture sector which employs 34 per cent of local workers (down from 56 per cent in 1990) and the industry sector (including manufacturing) which accounts for 21 per cent of local workers (having become more prominent in recent years).

Indonesia’s economy has significant points of difference with its Asian neighbours, such as Singapore and Thailand. In particular, Indonesia’s economy is largely driven by domestic activity rather than exports, which helped to cushion it from the global crisis of 2008-09.

Before the Asian economic crisis struck in 1997, Indonesia’s GDP ranked 22nd in the world at IDR624,337 billion – this equates to a per-capita annual income of approximately AUD705. The economy contracted in 1998, but resumed growing in 1999 on the back of increased government and consumer spending. Subsequent years of economic growth have elevated Indonesia into the top-20 world economies, earning it membership of the G20 group of nations.

After a significant setback prompted by the Asian economic crisis of the late 1990s, Indonesia’s economy has accelerated over the past 10 years, with GDP growth averaging more than 5.7 per cent a year. 2016 had a slightly lower growth rate of 4.9 per cent. This is due to a drop in private consumption, lower then expected Government spending and low commodity prices. Looking forward, annual average GDP growth is forecast at 5.7 per cent for the period 2017 to 2021, putting Indonesia on track to join the club of trillion dollar economies within just a few years.

Strong economic growth is helping the country achieve dramatic reductions in poverty. According to the World Bank, Indonesians living in poverty fell from 23.4 per cent of the population to 11.3 per cent between 1999 and 2014. This coincided with extensive growth in the number of Indonesians considered middle class – now approaching 50 million – and Indonesia’s increasing investment in basic services, particularly education.

Indonesia has a market-based economy in which the government plays a significant role, including administering prices for some basic goods such as fuel, rice and electricity. 

In terms of value added, the industrial sector accounted for 40 per cent of GDP in 2015. Significant foreign direct investment and government incentives have positioned the industry for future growth. Major industrial sectors include petroleum and natural gas, textiles and apparel, mining, footwear, plywood, rubber and chemical fertilisers. The services sector is equally as important to Indonesia’s economy, accounting for 43 per cent of GDP in 2015. Agriculture on the other hand only accounted for 14 per cent.

Indonesia’s main trading partners are Japan, China, Singapore and South Korea. The United States is also a significant export market. Indonesia’s most important export commodities are oil and gas, minerals, crude palm oil, electrical appliances and rubber products.