By Abdul-Latif Halimi
As it tallies votes from Wednesday’s election, Indonesia’s economic outlook is strong. What does that mean for the region?
Despite a mild economic slowdown amidst China’s economic rebalancing and the U.S. Federal Reserve tapering—and despite a dip in Indonesian shares following a surprisingly weak performance by the favorites in Wednesday’s parliamentary election—the general direction of Indonesia’s economy seems clear: onwards and upwards. Since the Asian Financial Crisis and the fall of Suharto, Jakarta has learned lessons, expedited political reforms, and taken economic strides that today constitute a platform from which Southeast Asia’s largest country can continue to build on what it has achieved to date. That’s not to say corruption, infrastructure deficiencies and inequality do not remain problems for whoever takes the political baton after President Susilo Bambang Yudhoyono, but Indonesia’s economic trajectory is bending sharply in the right direction.
Since the turn of the century, Indonesia’s economy has been one of the world’s best-performing and most consistent. Since 2001, the country has averaged 5.4 percent growth, far faster than the global average, despite the shocks of the global financial downturn. That growth has facilitated the fall of gross government debt from 95.1 percent of GDP in 2000 to around 26 percent today, the lowest of any ASEAN member-state except Brunei Darussalam, and enough for Fitch and Moody’s to grant Indonesia’s debt investment grade status. Indonesia has gone from being the world’s 27th largest economy in 2000 (nominal GDP) to the 16th largest today—an impressive leap in just fifteen years.
Much more is expected to come. Indonesia is forecast to have the world’s seventh largest economy by 2030, surpassing the U.K. and Germany according to a report by McKinsey Global Institute, and the fourth largest in 2040 according to a Citibank report, trailing only China, India and the United States. While such projections are often over-reliant on extrapolating current trends, there is little doubt that Indonesia stands to benefit immensely from a rebalancing of the global economy towards the Asia-Pacific and from the demographic dividend of the country’s young population. The former will ensure relatively high ubiquity of capital, technology and demand in Indonesian markets, while the latter will ensure that the workforce will be able to maintain productivity and a low dependency ratio between workers and dependents, thereby setting the foundation for decades of robust growth and healthy public finances.
The regional implications of this economic rise will be very significant, even if gradual.
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