1. Inside Indonesia
«The Indonesian Globalization»
SKEMA Business School
GLOBALIZATION course - January 2010 - PARIS

2. BERGY Lauriane
GARABEDIAN Robin
PELLISSIER Zelia
POIRIER Ophélie
RICHARD Géraldine

3. INTRODUCTION
In broad terms, globalization describes a process of increasing interdependence or the
building of networks between individuals, firms, countries or regions. The emergence of
these networks is evident in the economic field through the increased movement of goods,
services, knowledge, ideas, finance and people. The following document addresses the
question of globalization for Indonesia. After a presentation of the country, we will examine
what are the implications of globalization for the country, and finally we will focus on the
global crisis and its effects on Indonesia...
3

4. SUMMARY
3 INTRODUCTION
5 PART I - INDONESIA :
COUNTRY PRESENTATION
6 SOCIAL SITUATION 9 PART II - INDONESIA &
6 HISTORY & POLITICAL SITUATION GLOBALIZATION
7 ECONOMIC SITUATION 10 THE IMPACT OF THE
GLOBALIZATION ON THE CULTURE
10 STRENGHTS
11 WEAKNESSES
11 OPPORTUNITIES
14 PART III - INDONESIA & THE 12 THREATS
GLOBAL CRISIS
15 REMINDER OF THE INDONESIAN
KEY DRIVERS BEFORE THE
GLOBAL CRISIS
15 T HE I N DON ESIAN SITUAT ION 18 PART IV - CHALLENGE AHEAD
AFTER THE PEAK
16 R O L E O F T H E I N D O N E S I A N
GOVERNMENT DURING THE
CRISIS
17 P O V E R T Y & E M P L O Y M E N T
ISSUES, AFTER CRISIS SITUATION
20 SOURCES

5. PART I
INDONESIA :
COUNTRY
PRESENTATION

6. SOCIAL established the Dutch East India Company (VOC)
SITUATION from early 17th century and became the
The population of Indonesia is estimated at dominant European power. They colonized little
229,965,000 (2009 est.), and is expected to kingdoms which were Indonesia at this time and
grow to around 315 million by 2035, based on united the whole land under one government.
the current estimated annual growth rate of During the Second World War the Japanese got
1.14%. rid of the Dutch and imposed them. In August
1945, two days after the surrender of Japan,
Indonesia contains 17 508 islands, the largest Sukarno, an influential nationalist leader took the
being Sumatra, Kalimantan, Sulawesi, New power and declared himself as president.
Guinea and Java. The fact of having so many Sukarno moved from democracy towards
islands created a very particular country full of authoritarianism.
diversity and languages: there are around 300 A very important moment in Indonesia which will
distinct native ethnicities, and 742 different
have many influences on the way globalization
languages and dialects. The official national
affects Indonesia is the set up of the ‘New Order’.
language, Bahasa Indonesian, is spoken by
General Suharto took the power in 1968 after a
nearly every Indonesian. Six religions are officially
coup. He set up a whole new plan for Indonesia.
recognized: Islam (86,1%), Protestantism/
By giving a new political orientation to Indonesia
Roman/Catholicism (8,7%), Hinduism(3%),
he opened the country to western investments
Buddhism (1,8%), and Confucianism. Indonesia
and contributed to three decades of good
is the world's most populous Muslim-majority
economic growth. The New Order administration
nation.
brought a degree of discipline to economic policy
The main ethnicities are Javanese (41%),
that brought inflation down, stabilized the
Sundanese (15%) and Minangkabau(3%).
currency, rescheduled foreign debt, and attracted
foreign aid and investment. Following further
Concerning the age structure of Indonesia, there
reforms in the late 1980s, foreign investment
is 66% of 15/64 years old; 28% of 0/14 years old
flowed into Indonesia. Particularly into the
and 6% of more than 65 years old. This age
manufacturing sector, and from 1989 to 1997,
structure shows that Indonesia has a high level of
the Indonesian economy grew by an average of
young people, which will lead in 10 years to a
over 7%. But after the Asian crisis in 1998
boom of the consumption in Indonesia.
Suharto resigned.
Some other important data are relevant here to
In 2004 Yudhoyono became president and was
understand the social situation of Indonesia. The
re-elected in October 2009. His goal is to
life expectancy is 68 years old (67 in average for
implement a "pro-growth, pro-poor, pro-
the East Asia & Pacific countries). The fertility rate
employment" economic program. He announced
is 2,31 born / woman. 90,4% of the population is
an ambitious anti-corruption plan in December
literate. The infant mortality is 26 for 1000 births
2004 as one of the biggest that is facing
(35 for the East Asia & Pacific countries). 52% of
Indonesia is the high level of corruption.
the population is urban. The unemployment rate
Transparency International ranked Indonesia
is 8,4%, and 17,8% of the population lives below
143rd out of 180 countries in its 2007 Corruption
the poverty line.
Perceptions Index.
HISTORY & POLITICAL Indonesia has close relationships with its
SITUATION neighbors in Asia, and is a founding member of
The modern Indonesia development has been ASEAN and the East Asia Summit. Indonesia has
heavily affected by the countries who were ruling been a member of the United Nations since
the land in the past. Indonesia has always been a 1950. Indonesia has received humanitarian and
country filled with conquests, commerce and development aid since 1966, in particular from
religious conversions. At the beginning, the the United States, Western Europe, Australia,
country was a place where traders from India and and Japan.
china were bartering goods, then the Dutch
6

7. ECONOMIC from 87 to 97 and it was looking like Indonesian
SITUATION was becoming a new emerging country with a
major market and opportunities of
In 1997/1998 Indonesia was the hardest country industrialization. The Asian crisis arrived in 1997
hit by the Asian crisis. In May 1998 General and with the depreciation of the Thai currency the
Suharto resigned. Following that a new era foreign assets and investments in Asia dropped
began with a large number of economic and leaving Indonesia very affected. In 1998,
political reforms leading to a better stability. Indonesia experienced a negative GDP growth of
To understand this graph let’s talk a little about 13.1% and unemployment rose to 15-20%. You
the economical situation before the Asian crisis can see in this graph that Indonesia has been hit
and the aftermath. The Indonesian gross severely in 97/98 by the Asian crisis indeed the
domestic product (GDP) growth averaged 7% GDP per capita drop from $2572 in 97 to $2226
in 96.
GRAPH.1
GRAPH.2
Since the crisis, Indonesia has recovered little by The GDP by capita is 3900$(2008 est.). The real
little by recapitalizing its banking sector, growth rate (2008 est.) is 6,1%.
improving oversight of capital markets, and
taking steps to stimulate growth and investment, Since 2004 the government has done some
particularly in infrastructure. GDP growth has successful reforms for example in the tax/
steadily risen to achieve real growth of 6.3% in customs areas and a new investment law passed
2007 and 6.1% growth in 2008. in 2007. This law has been done to try to
increase the amount of foreign and domestic
Currently the GDP (purchasing power parity) is investments. Despite some improvements
$914.6 billion (2008 est.). World Bank ranked Indonesia is still fighting with poverty and
Indonesia 16th in term of GDP by PPP. unemployment (Estimation 2008: Unemployment
Rate: 9,75%), with corruption as we just talked
7

8. about, with poverty (17,8% of the population is
below the poverty line).
The rupiah (Rp) is the official currency of
Indonesia. The Bank of Indonesia is issuing and
controlling it, the currency code for the
Indonesian rupiah is IDR.
The Table below shows the GDP by sector.
The services sector is the economy's largest and
accounts for 43,3% of GDP. It is followed by
industry (43%) and agriculture (14.0%). However,
agriculture employs more people than other
sectors, accounting for 44.3% of the 95 million-
strong workforce. This is followed by the services
sector (36.9%) and industry (18.8%). Major
industries include petroleum and natural gas,
textiles, apparel, and mining. Major agricultural
products include palm oil, rice, tea, coffee,
spices, and rubber.
Indonesia left the Organization of Petroleum
Exporting Countries (OPEC) in 2008, as it had
been a net petroleum importer since 2004. In
2008, the oil and gas sector is estimated to have
contributed $25.3 billion of government revenues.
U.S. companies have invested heavily in the
petroleum sector. Indonesia ranked 11 in world
gas production in 2007. Indonesia has as well a
lot of different minerals (bauxite, silver, tin, copper,
nickel, gold, coal).
Indonesia has 124 commercial banks (10 are
majority foreign-owned and 28 are foreign joint
venture banks). Four state-owned banks (Bank
Mandiri, BNI, BRI, BTN) control about 37.4% of
assets. The Indonesian central bank, Bank
Indonesia (BI), announced plans in January 2005
to strengthen the banking sector by encouraging
consolidation and improving prudential banking
and supervision.
8

9. PART II
INDONESIA
&
GLOBALIZATION

10. THE IMPACT OF THE GLOBALIZATION Then the language: Bahasa Indonesia is also a
ON THE CULTURE product of imports (Arabic, Chinese, Japanese,
It is very interesting to talk about the Indonesian Dutch, Portuguese and English) mixed with the
culture because it appears many traders from all old dialects from the islands,
around the globe had landed their feet in the The clothes are mainly western now and even the
country and mingled with local cultures which ‘traditional’ costumes have long been influenced
had been affecting the local culture for centuries. by Chinese, Indian and Arab cultures.
We can see that Indonesia experienced Indonesian culture is a mix from local cultures
globalization in three waves: Christianization, the and from many cultures brought by traders and
tourist industry, and urbanization. the western so we can conclude than for
Christianity came to Indonesia with Western Indonesia cultural globalization is certainly not a
traders in the 16 th century. Before that product of modernity but a long process which
Indonesians were animists and this way of began a long time ago.
thinking remains in the hearth of many But, globalization has also various political and
Indonesians even when they are Muslims or economical impacts on Indonesia either favorable
Christian,…In the early 17th century, trade and o r t h re a t e n e d . L e t ’s re v i e w t h e m a j o r
political power was taken over by the Dutch East consequences of the globalization and the recent
Indies Company and following the Western crisis, which affected or still affects the
Reformation most of the Roman Catholic Indonesia’s economy.
congregations were forced to become Calvinist
Protestants. STRENGHTS
Islam emerged as major religion when Sultan The balance trade remains positive despite the
Alauddin, the King of Goa, Islamized other crisis.
kingdoms by military force. Islam became a
In 2007 and 2008, Indonesia showed a trade
popular religion and mixed with old traditions.
surplus. Despite the crisis, exports have done
The way the Indonesians practices faith (mix of well in 2009, but the trade surplus has had a
old beliefs and Islam) became a tourism downward trend because of the rapid increase of
attraction. In Bali for example, apart from the imports. Emerging exports such as footwear and
withes beaches tourist can find as well millions consumer electronics also showed weak growth.
temples, many type of dances and ceremonies However, rising world prices for oil (except in
that they can’t find elsewhere in Indonesia. Bali 1997 and 1998), rubber, and other commodities
became one of the main touristic destinations in kept these exports high. The increase in non-oil
south-east Asia. The population of Bali is around imports owes much to the demand for consumer
3,000,000 and yet 2,000,000 foreign tourists and goods. Economic, political, and social crisis was
1,500,000 Indonesian tourists visit every year. accompanied by a small leap in exports due to
This is 1.166 times the permanent population. currency depreciation, but earnings in the non-oil
Tourism has affected the Balinese culture, the sector remained low. Oil and Gas trade balance
way Balinese practice the dance now and show remains positive (despite declining trends).
that in public is different than before when the Toward an economic integration…
dances were only a way to celebrate religion.
Globalization has given the government a strong
It is very interesting to see how globalized is justification for undertaking market-oriented
Indonesia. reforms that can help maintain high and
Most of the "traditional" recipes are a complex sustainable rates of exports necessary for strong
blend of cultural influences. Chinese, Indian, economic growth. In order to remain competitive
Arab, Dutch, Spanish, Portuguese and Anglo. in a globalized market Indonesia has
Even the world-famous Indonesian Rijsttafel (rice implemented a gradual policy of liberalization
table), a banquet of many dishes, was a Dutch showed a real will to meet the requirements of
colonial creation. different global organizations and regional ones
such as WTO and ASEAN.
10

11. Indonesia is very active in Asia in term of been very weak because of the Politics. The fall
Foreign Direct Investment (FDI). of Soeharto in 1998, however, has allowed a
better space for civil society.
Indonesia receives a lot of FDI from Singapore
and sends a lot to the Asian countries as well. A pattern of governance still focused on the
Also, we can see that Indonesia has well political concerns to the detriment of the market
recovered from the Asian financial crisis and is and society’s concerns.
becoming an attractive location for investors
This is a real weakness of the Indonesian
despite the risks such as corruption or political
government, which not only considerably slows
instability and despite the concentration of the
the process of liberalization of the economy but
investment on the new attracting countries as
also leads to the increasing asymmetries. To be
China or India.
more competitive and to achieve a healthy
g ro w t h , I n d o n e s i a m i g h t n e e d s a n e w
WEAKNESSES governance model based on a full involvement of
Corruption, still ingrain in the mindset civil society and a strong and balanced
partnership between the three sectors which are
Despite a challenging anti-corruption plan in currently separated and hierarchical:
December 2004, Transparency International Government, Market and Civil society.
ranked Indonesia 143rd out of 180 countries in
its 2007 Corruption Perceptions Index. But, in
2009, Indonesia won 32 ranks, the country is OPPORTUNITIES
now ranked 111st. Indonesia sounds being more Focus exports on manufactured products
determined than never to keep fighting corruption
in the country in order to welcomed more and In 2008, imports increased by 73.5 percent
more credibility, so more foreign investments. largely due to machinery and transport
equipment and manufactured goods. This could
Still huge disparities in the Indonesian society
lead to a more competitive economy and a
Indonesia still has to deal with the disparities healthy growth based on a competitive
resulting from globalization. For example, the advantage.
increasing asymmetries of income and access to
economic opportunities between different groups Give a greater place to the business sector
in the society as well as between different
The business sector has been apart so far due to
regions, sectors and companies. Enhanced by
an important agricultural sector. The government
globalization and by a government focused on
has implemented reforms to give more autonomy
the political aspects, Indonesia has to face huge
to the business sector. It can be a real
inequalities within its civil society (still 17.8% of
opportunity to improve their competitiveness in
the population under the poverty line whereas a
this globalized market.
similar country such as Thailand has 10% of its
population under the poverty line). Give a greater place to the civil society and
encourage it to consume
But, with the economic crisis, South-east Asians
d i s c o v e re d t h e ro l e o f c i v i l s o c i e t y i n If we take a look at the age structure of
development. We can define the term “civil Indonesia, we can see that the 15/64 years old
society” as: “the sphere of institutions, represent 66% of the total population; the 0/14
organizations, and individuals located between years old represent 28% and the 65 years old,
the Family, the State and the Market, in which only 6%. This high level of young people could
people associate voluntarily to advance common lead to a boom in 10 years of consumption in
interests.”* But they still have some way to go to Indonesia.
become an equal partner in a kind of tripartite
*Definition by CIVICUS, an international association of
governance (Government, Market and Civil
civil society organizations
Society) for development and security in the era
of globalization. In Indonesia, civil society has
11

12. Increasing competition through a decrease of broadly-based, may have shifted Indonesia’s
the tariffs trade structural inflation rate to an even higher level.
Today, Inflation has decreased to 6.3% which
In agreement with the Bogor goals defined during
should lead to an increase in the investments.
a meeting in 1994 where APEC leaders
described their vision of free and open trade and THREATS
investment, Indonesia is planning significant tariff
The depreciation of the currency also perceived
reductions in its Tariff Harmonization Program
as a threat for the imports
and has agreed to reduce protection under
several new FTA Agreements. In other words, A weak currency can also lead to major problems
new forces will take over the work of the Uruguay to import and mostly if we consider that most of
Round in opening Indonesian markets. Indonesia the Indonesian imports are based on machinery
is very confident to meet the Bogor deadline and equipment to be able to produce their
(which is in 2010, so pretty soon) in terms of manufactured products that they will export to
average tariff levels. their major partners such as Japan, China or
Singapore. So that is why, it is very important to
In a globalized world, the depreciation of the
keep in mind that a depreciated currency could
currency as a good opportunity for the exports
have some important negative points on the
The exchange rate of the rupiah against the USD domestic economy.
had been stable in the 9,000-10,000 rupiah/USD
Indonesia remains hard to enter for foreign
range since 2003, but as the global economic
investors
financial crisis accelerated in September 2008,
the rupiah began to depreciate sharply reaching Foreign direct investment (FDI) in Indonesia rose
nearly 13,000. This can be a real opportunity to 73 percent to $10.3 billion in 2008 thanks to
boost the exports, as they are cheaper for a lot of political stability and an improving climate in
buyer country, due to the exchange rate. Southeast Asia. But Indonesia remains hard to
enter for foreign investors. Various reasons can
Indonesia’s inflation rate holds near nine-year
explain this phenomenon: corrupt and inefficient
low
customs services; non-transparent and arbitrary
Indonesia’s inflation held near a nine-year low in tax administration; inflexible labor markets that
December 2009, providing the central bank room have reduced Indonesia's advantage in labor-
to delay raising interest rates. Bank Indonesia has intensive manufacturing; increasing infrastructure
kept its interest rate at a record low of 6.5 bottlenecks; and uncompetitive investment laws
percent since August 2009 following nine rate and regulations. In each of the past three years,
cuts that have helped Southeast Asia’s biggest the Government of Indonesia has announced a
economy avoid a recession. Low inflation and a series of economic policy packages willing to
decline in borrowing costs may lead on stimulate investment and infrastructure
consumer spending, which accounts for about improvements.
two-thirds of Indonesia’s $514 billion economy.
This will provide the opportunity for banks to
further lower their rates, which should boost the For a lot of people Indonesia is still associated
economy. to a centralized and corrupt administration with
a lot of weaknesses in some key areas such as
An Inflation which tends to be controlled. the court system. But the government took on
The Indonesian’s rate continues to be higher than challenges to change the tainted image on the
country in order to impose Indonesia in this
its trading partners—most of them are now
context of globalization through different ways
experiencing deflation—however, since late 2008,
such as the respect of the WTO rules, its
Indonesia’s inflation rate has fallen by more than rapprochement with the APEC, the
most of its major trading partners. This is despite management of the inflation and the currency,
concerns that the depreciation of the rupiah in the effort to jump off from a economy based on
late 2008, and the rise of inflation expectations to the primary sector (agriculture) to one based on
high levels earlier that year as inflation became the manufactured products (GDP composition
12

13. by sector in 2008: agriculture: 13.5%, industry:
45.6%, services: 40.8%) etc… Some results
are tangible, even though some of the key
reforms are of relatively recent origin. Unless
the emerging global downturn overwhelms
these efforts, they are likely to bear the fruits in
the years ahead.
13

14. PART III
INDONESIA
&
THE GLOBAL
CRISIS

15. Since 2008, the World Economy is been facing a hikes in 2005, managed a gradual recovery to
deep downturn, one of the deepest crisis since provide added stimulation for private
World War II. The financial crisis in the United consumption. Investment began to show
States of America (US) characterized by the significant improvement following a downturn
subprime mortgage in the housing sector brought on by slackened domestic demand.
constitutes the origin of this international slump. Exports maintained their rapid expansion at the
The subprime mortgage crisis spread over other beginning of the year, supported by world
assets as well as triggered a liquidity crunch. demand and high international prices for
Few months later, this financial crisis turned into resource- based commodities.
Economic crisis (commodity and fuel prices
soaring, growth decreasing, unemployment) then, All economic sectors reported higher levels of
according to the contagion effect, into a Global growth compared to the preceding years.
crisis (fall of FDI, global recession) accentuated Leading growth sectors were transport and
by the globalization and the reliance of all the communications, electricity, gas and water
countries to US. supply sector, construction, financial sector and
trade, hotels and restaurants sector.
As countries opened to the world’s economy,
emerging and developing economies such as Manufacturing, trade and transportation were the
ASEAN countries experienced a serious main sectors driving the growth of the economy.
slowdown. Growth in emerging and developing As a summary and as of 2007, the Manufacturing
economies is expected to slow sharply from 6 ¼ sector counted for 43 percent of the Growth
percent in 2008 to 3 ¼ percent in 2009, under Domestic Product, whereas Services and
the drag of falling export demand and financing, Agriculture represented 43.3 percent and 13.8
lower commodity prices, and much tighter percent accordingly.
external financing constraints (especially for During the second half of 2007, the global
economies with large external imbalances). economy began to slowdown. Despite these first
Stronger economic frameworks in many signs of the upcoming Global slump, Indonesia’s
emerging economies have provided more room economic growth accelerated to a ten-year high
for policy support to growth than in the past, of 6.3 percent in 2007. This growth rate was
helping to cushion the impact of this sufficient to reduce poverty from 17.8 to 16.6
unprecedented external shock. percent based on the Government’s poverty line
The following chapter highlights the situation of and reversed the recent trend towards jobless
Indonesia regarding the Global Crisis, its impact growth, with unemployment falling from 10.3 to
on the domestic and international economy as 9.1 percent. Poverty and unemployment are one
well as the government responses and the of the main issues in such an emerging/
Stimulus package associated developing country; given that the way to a
sustainable economic development definitely
depends on the improvement of the poverty level,
REMINDER OF THE INDONESIAN KEY we must consider this issue to appreciate the
DRIVERS BEFORE THE GLOBAL CRISIS
Indonesian situation. This point will be handle
Before the impacts of the Global crisis, the later on.
Indonesian economy showed overall
improvement. On 2007, the economic growth THE INDONESIAN SITUATION AFTER THE
surpassed that of the previous years, reaching its PEAK
highest level since the outbreak of the Asian On 2008 Q4, the international economic and
Crisis in the year’s 1997. financial turbulence reached its peak. Since the
beginning of 2008, the Indonesian growth
The impressive gain in economic growth before continued to fall until 4 percent in Q4, on a year-
the Global Crisis was reflected in surging on-year basis.
domestic demand and relatively strong exports.
In the first half of 2007, public purchasing power, Thus, during the second quarter of 2009, the
which had weakened in 2006 after fuel price main driver of the Indonesian growth in the
15

16. second quarter came from a faster recovery in Waiting for these ideological reconsiderations, all
export volumes than in imports. This status could the governments of each country set up huge
be explained by the high commodity prices, on recovery plans over the world. As an example,
which Indonesia responded by some The American Recovery and Reinvestment Act of
improvement in exports compared to imports, 2009 represents $787 Billion, whereas EU spent
preventing reliance to foreign countries. In the 200 Billion Euro, and France 26 Billion Euro.
same time, government consumption strongly Thus, after deep crisis such the one we are
grew, rising 2.7 percent quarter-on-quarter to be experiencing, governments definitely have an
17.0 percent higher year-on-year, well above its important role to correct the imperfections of the
5-year average whereas private consumption “holy” Free Trade. In this framework, the
stabilized. Indonesian government played a role to aid the
economic recovery.
Is spite of the fact that the impact of the crisis is
not as deep as in developed countries, the First of all, there is no doubt that the fiscal
drivers of the Indonesian growth shifted during stimulus set up by the government during the
the slump. During 2009 Q2, accelerating service very period of the crisis has helped to cushion the
sector activity supported the pickup in aggregate meltdown. The government’s program of tax
GDP growth. This is a turn-around of the steady cuts has reduced tax revenues, and some of
deceleration, which began in mid-2008. The these cuts were programmed in 2008 towards
acceleration is mostly attributable to the retail expanding the base of registered taxpayers. The
sector, which constitutes the largest share of the notional value of these cuts was Rp 43.0 trillion
service sector, and is corroborated by the gradual or 17 percent of 2008’s non-oil & gas income tax
rise in the monthly retail sales index. Growth in receipts. Others were introduced to support
the industrial sector has remained stable despite spending and employment in sectors particularly
expectations of a slowdown, growing very close vulnerable to the fall in commodity prices and
to its five-year average growth rate in the quarter. global economic downturn, with an estimated
Most industrial sectors experienced stronger value of Rp. 13.3 Trillion.
growth, but mining, which continued its secular
decline in activity, offset this. Following robust But the main contribution of the government
growth in 2009 Q1, total agricultural production regarding the global crisis remains the Stimulus
slowed as food and non-food farming output Package, set up in 2009 for a middle/long term
contracted. perspective:
As a conclusion, in the first half of 2009, On February 24, 2009, the Indonesian
Indonesia’s economy has established a solid government received approval from the House of
recovery from late last year. This recovery Representatives to launch the stimulus package,
coincides with an improved external environment. of the total Rupiah 73.3 trillion ($6.3 billion). This
Q2 GDP outcomes across its major export amount includes tax savings of Rp 43 trillion,
destinations were better than expected, and government spending and subsidies of Rp 15
most trading partners exited recession by mid- trillion and waived import duties and taxes
year. International prices of many of Indonesia’s amounting to Rp 13.3 trillion.
exports have recovered much of the late 2008 I we go in-depth into the package, this can
falls. These developments have supported broken down into several independent parts. On
Indonesia’s economy, with exports recovering the one hand, Rp13.3 trillion and Rp 43 trillion
faster than imports. have been set aside for waived taxes for
consumers and businesses and tax savings
ROLE OF THE INDONESIAN GOVERNMENT respectively. On the other hand, Rp 10.2 trillion
DURING THE CRISIS AND THE STIMULUS
has been allotted for infrastructure spending with
PACKAGE
Rp 2.8 trillion as diesel subsidy and Rp 1.4 trillion
The Global Crisis arisen in 2008, as we in form of discounted electricity rates for
mentioned before, is unprecedented since WWII, industries. Rp 0.6 trillion has been earmarked for
and represents a reconsideration of the world’s developmental expenses for rural areas.
financial and economic system in long term.
16

17. In brief, this stimulus package aims at Regarding poverty, the proportion of Indonesians
strengthening consumer’s purchasing power, living in poverty also fell in the year to March,
i n c re a s i n g s p e n d i n g o n l a b o r- i n t e n s i v e from 15.4 percent to 14.2 percent. This fall is
infrastructure, and raising sturdiness and despite the rapid increase in the cost of living,
competitiveness among businesses. especially for poorer households, through to the
third quarter of 2008, and the decline in incomes
POVERTY & EMPLOYMENT ISSUES, AFTER and employment that is likely to have occurred
CRISIS SITUATION around the turn of 2009 as commodity prices
Population below poverty line in Indonesia is slumped and economic activity stalled. Modeling
around 17.8 percent in 2006, with a rank of 108 suggests that much of the fall in the poverty rate
of the poorest country in the world. One of the is attributable to the boost in poorer household’s
relevant questions we can raise is to know in income from the unconditional cash transfer
what measure has the global crisis increased this program (BLT).
situation, considering the employment as well,
The forecasts for GDP growth and inflation
which is one of the main means to curb poverty.
suggest that the poverty rate is likely to continue
In 2009, employment does not appear to have to fall albeit at a slower pace than occurred in the
been significantly affected by the slowdown in the last year. Whatever the pace of the poverty fall,
economy around the tur n of the year. this is still a good news for a country such as
Employment rose by 2.4 percent or 2.44 million Indonesia…
workers in the year to February to 104.5 million,
faster than the 1.6 percent growth in the
p o p u l a t i o n a g e d 1 5 a n d o v e r. F e m a l e
employment increased by 3.3 percent, almost
twice as fast as male employment, and the labor
force participation rate increased for both
genders to an average 68.5 percent over all.
Trade made the largest contribution to the
increase in employment, with 21.8 million
Indonesians working in the sector in February
2009. 43.0 million work in agriculture, 0.8 percent
more than a year earlier. Together these increases
were more than enough to absorb the growing
workforce and higher participation, leading
unemployment to fall 0.3 percentage points to
8.14 percent.
Nevertheless, we have to take the sting out of
this statement if we consider the Indonesian
situation of the “casual employment”. The casual
non-agricultural workforce increased by 7.3
percent, and the unpaid labor force increased by
4.0 percent to 18.7 million; the number of
‘employers’ barely changed. Casual employment
particularly affects female workers: only 39
percent of female workers report being an
“employer” or “employee”, while almost 60
percent of male workers are in these categories,
and this trend became stronger in the year 2009
to February.
17

18. PART IV
CHALLENGE
AHEAD

19. ENVIRONMENT Second, poverty in Indonesia is still high. Most
families in Indonesia continue to live just above
Indonesia is particularly vulnerable to the effects
the poverty line. Higher growth during the next
of climate change, which include rising sea levels
years will be necessary to bring down absolute
and erosion of coastal areas, increased frequency
poverty (now at about 6%), but also to reduce
and intensity of extreme weather events, species
the numbers of the “near-poor”, which account
extinction, and the spread of vector-borne
for almost half of the Indonesian population and
diseases. But Indonesia is encountering many
who are vulnerable to shocks. A support for this
difficulties to find a way to cope with this.
group will be necessary to stimulating the
Indonesia has the fastest deforestation rate which
domestic economy and the democratic transition
makes it the third-largest contributor of
process. Indonesia also needs to restore the
greenhouse gas emission (behind China and the
performance of tradable sectors, a rapid growth
US). In December 2007 Indonesia organized the
in those sectors is essential to finance investment
13th Conference of the Parties of the United
and sustain external debt service payments in
Nations Framework Convention on Climate
future years.
Change (UNFCCC), and led efforts to highlight
the importance of forests and deforestation in the
climate debate. THE INDONESIAN SITUATION AFTER THE
PEAK
Indonesia is also having the greatest marine Transport equipment may become a new driver
biodiversity on the planet. President Yudhoyono of Indonesia’s manufactured exports. This
called for a Coral Triangle Initiative (CTI) in August industry appears to have found an international
2007. The Coral Triangle Initiative is a regional market its exports growing by 37% in 2007,
plan of action to enhance coral conservation, contributing 5.7% to the growth in non-oil
promote sustainable fisheries, and ensure food exports. In contrast, growth in the traditional
security in the face of climate change. manufacture exports of textiles, clothing, and
footwear declined to only 4% in 2007 after
C O N T I N U E T O C U R B P O V E RT Y A N D 2006’s 11% growth, reflecting increasing
IMPROVE EMPLOYMENT competition from China and Vietnam.
The level of public expectations is high in
Indonesia given that the 1997-1998 economic
crises wiped out the gains of the previous 30
years. The economic crisis has left a deep trauma
in Indonesia, eroding public confidence in the
nation’s economy.
Despite this, the Government has pursued some
unpopular policies, such as the fuel price hikes in
2005 and early 2008, with successful results.
Thanks to those policies, the economy has
stabilized and revitalized.
In the medium and long-term perspective,
Indonesia still needs to attain higher levels of
economic growth over the coming decade for
different reasons.
First, changes in technology have reduced
elasticity in job creation per 1% of economic
growth. Thus to low unemployment Indonesia's
non-oil and gas sectors will have to maintain a
consistent level of growth throughout the coming
decade.
19

20. SOURCES
Reports
World Bank report: Indonesia Economic Quarterly (September 2009)
Comtrade Indonesia 2008
Bank Indonesia 2008 Report
Indonesia 2009 IAP Study Report
World Investment Report 2008
International Monetary Fund: World Economic Outlook Update 2008, www.imf.org
Websites
World Bank website: Crisis talk, emerging markets and the financial crisis:
http://crisistalk.worldbank.org/2009/03/indonesias-stimulus-package.html
http://www.bloomberg.com/apps/news?pid=20601080&sid=a9R1WMDWDSoU&refer=asia
http://www.nationsencyclopedia.com/Asia-and-Oceania/Indonesia-FOREIGN-TRADE.html
http://www.economywatch.com/economic-stimulus-package/indonesia.html
http://www.indexmundi.com/indonesia/population_below_poverty_line.html
http://www.fnpfirm.com/lib/Foreign_Investment_in_Indonesia__writeup_.pdf
http://singapore.usembassy.gov/uploads/images/LcHzDIVG7FgFo7nqpuxsCQ/
InvestDev_Oct03Mar04.pdf
http://www.gdn-japan.jbic.go.jp/en/about/topics/2009/0421-01/3-2-1%20Outward_Pananond.pdf
http://www.bi.go.id/web/en/Moneter/Inflasi/
http://www.indexmundi.com/map/?t=10&v=71&r=as&l=en
http://www.export-import-indonesia.com/indonesia.php
https://www.cia.gov/library/publications/the-world-factbook/geos/id.html
http://www.indexmundi.com/indonesia/gdp_per_capita_(ppp).html
http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=IDR
http://www.nanzan-u.ac.jp/SHUBUNKEN/publications/miscPublications/I-R/pdf/45-Ngelow.pdf
http://www.travelblog.org/Asia/Indonesia/Java/Jakarta/blog-411362.html