Indonesia: A Rising Star in Southeast Asian Emerging Markets

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SEATTLE — Indonesia boasts the largest economy in Southeast Asia with promising growth predictions. The economy grew rapidly in the early 2000s. This growth has slowed down considerably, but Indonesia still shows trends of sustainability and continued economic strength.

Sound government policies, decreased protectionism and a growing middle class has contributed to foreign investment, increased purchasing power among consumers and strides in alleviating poverty, although there is still much room for continued progress.

The Positive Signs
Indonesia’s gross national product per capita rose from $560 in 2000 to $3,374 in 2015. In addition, the country reduced its poverty rate to 11.2 percent, which is a 50 percent drop since 1999.

The economy is expected to grow five percent in 2016, employment is increasing, interest rates are falling and inflation is low. These factors meshed with high life expectancy, high fertility rates and a government reputation for sound management point to a rising star in Southeast Asian emerging markets.

Long-Term Development Plans
Indonesia implemented a tax amnesty plan that has collected approximately $350 billion, which is only nine percent of the projected total. This is part of a 20-year development plan launched in 2005 and managed in five-year increments. The focus for 2015-2020 is developing infrastructure as well as improving healthcare, education and social programs.

Decreased Protectionism
In February 2016, the government opened select business sectors to foreign ownership to attract investors. Approximately 35 sectors are now open to 100 percent foreign ownership. Some of these sectors include tourism, film and waste management. Some of those open to partial foreign investment are healthcare and telecommunication. Online ventures are open to investments of $7.4 million.

Partnerships with the World Bank
Indonesia also has strategic partnerships with the World Bank. The Country Framework Partnership (CFP) is one the largest country programs of the World Bank Group. The full impact of this program is projected at $10 billion in loans, equity and guarantees.

The International Finance Corporation (IFC), also part of the World Bank Group, has invested over $2 billion across 31 clients and programs. Their focus is on improving access to capital for small and medium-sized enterprises (SMEs) in order to improve infrastructure for an estimated 8.5 million people.

The World Bank assists through other various programs that improve sanitation, provide clean water, revitalize urban slums, manage disasters and reduce poverty across 500 local governments throughout Indonesia.

A Growing Middle Class
Indonesia has the fourth largest middle class in the world, numbered at 17.3 million in 2014. It is estimated to grow to 20 million by 2030. This young middle class is securing mortgages, making investments, saving money and purchasing consumer goods. This growing consumer base is expected to be a boon to industries involving medical services, health, leisure, recreation, hotels and catering.

Room for Improvement
Economic progress has not affected everyone equally. There are still significant socioeconomic differences between groups and regions of Indonesia. Slums and shanty towns remain juxtaposed to high-end shopping centers and luxury cars.

Even though the Indonesian economy grew by five percent each year between 2000 and 2010, its GINI Index rating, which is a measurement of inequality, has barely changed since 1980. This disparity suggests a difference between reality and reporting.

For example, the top 40 entrepreneurs in Indonesia make up one-tenth of its annual GDP, and as of 2010, there were still an estimated 230,000 children living in the streets. This suggests unseen, and possibly widening social gaps.

Additionally, 28 million Indonesians still live below the poverty line and 40 percent remain vulnerable to poverty. Public services remain lackluster and uneven, with maternal mortality rates falling below Millennium Development Goals at 126 deaths per 100,000 live births. One in three children still suffer from stunted growth and hindered brain development.

Though strides were made early in the 2000s on poverty reduction, progress has slowed considerably with only a 0.3 percent reduction each year since 2012. Mother and child health, access to quality education, wealth equality and poverty reduction are still lacking and must be addressed if Indonesia is to continue its trend as a rising star in Southeast Asian emerging markets.

Mandy Otis

Photo: Flickr

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About Author

Mandy Otis

Mandy writes for The Borgen Project from Lexington, KY. She has a Bachelor of Arts in Political Science from Georgetown College (KY) and a Master of Arts in International Relations from The Patterson School at the University of Kentucky. Mandy has worked for a congressman as well as in the Kentucky Office of Homeland Security. Mandy is also a parenting blogger and mom of two boys. Her dream is to travel the world.

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