MACRO ECONOMICS

PROJECT

COUNTRY INDONESIA

Prepared By:
Yahya Patanwala
(12028)
Introduction:
The economy of Indonesia is the largest in Southeast Asia and is one of the emerging market economies of the
world. As an upper-middle income country and member of the G20, Indonesia is classified as a newly
industrialized country. It is the 16th largest economy in the world by nominal GDP and the 7th largest in terms of
GDP (PPP). Estimated at US$40 billion in 2019, Indonesia's Internet economy is expected to cross the US$130
billion mark by 2025. Indonesia depends on domestic market and government budget spending and its
ownership of state-owned enterprises (the central government owns 141 enterprises). The administration of
prices of a range of basic goods (including rice and electricity) also plays a significant role in Indonesia's market
economy. However, since the 1990s, the majority of the economy has been controlled by individual Indonesians
and foreign companies.
In the aftermath of the 1997 Asian financial crisis, the government took custody of a significant portion of
private sector assets through the acquisition nonperforming bank loans and corporate assets through the debt
restructuring process and the companies in custody were sold for privatization several years later. Since 1999
the economy has recovered, and growth has accelerated to over 4–6% in recent years.
In 2012, Indonesia replaced India as the second-fastest-growing G-20 economy, behind China. Since then, the
annual growth rate has fluctuated around 5%. However, Indonesia faced a recession in 2020 when the economic
growth collapsed to -2.07% due to the COVID-19 Pandemic, the worst growth since 1997 crisis.

Economic Ranking 16th

Economic HDI 107 out of 189
Currency Name Indonesian Rupiah
Current Exchange Rate 1 Dollar = 14,434.05
Type of Economy Indonesia has a mixed economic system
which includes a variety of private freedom,
combined with centralized economic planning
and government regulation. Indonesia is a
member of the Asia-
Pacific Economic Cooperation (APEC) and
the Association of Southeast Asian Nations
(ASEAN).
Population 270.6 million.
Labor Force 67.8%
Major Exports Oil & Gas, Minerals, Crude Palm Oil,
Electrical Appliances & Rubber Products.
Major Imports Natural Gas, Tin, Copper, & Gold.
Major Trading Partners Japan, China, Singapore, & South Korea.

Major Economic Events in its History:

1.“Missed Opportunities”
Anne Booth has characterized the economic history of Indonesia with the somewhat melancholy phrase “a
history of missed opportunities” (Booth 1998). One may compare this with J. Pluvier’s history of Southeast
Asia in the twentieth century, which is entitled A Century of Unfulfilled Expectations (Breda 1999). The missed
opportunities refer to the fact that despite its rich natural resources and great variety of cultural traditions, the
Indonesian economy has been underperforming for large periods of its history. A more cyclical view would lead
one to speak of several ‘reversals of fortune.’ Several times the Indonesian economy seemed to promise a
continuation of favorable economic development and ongoing modernization (for example, Java in the late
nineteenth century, Indonesia in the late 1930s or in the early 1990s). But for various reasons Indonesia time
and again suffered from severe incidents that prohibited further expansion. These incidents often originated in
the internal institutional or political spheres (either after independence or in colonial times), although external
influences such as the 1930s Depression also had their ill-fated impact on the vulnerable export-economy.
2.“Unity in Diversity”
In addition, one often reads about “unity in diversity.” This is not only a political slogan repeated at various
times by the Indonesian government itself, but it also can be applied to the heterogeneity in the national features
of this very large and diverse country. Logically, the political problems that arise from such a heterogeneous
nation state have had their (negative) effects on the development of the national economy. The most striking
difference is between densely populated Java, which has a long tradition of politically and economically
dominating the sparsely populated Outer Islands. But also within Java and within the various Outer Islands, one
encounters a rich cultural diversity. Economic differences between the islands persist. Nevertheless, for
centuries, the flourishing and enterprising interregional trade has benefited regional integration within the
archipelago.
3.Economic Development and State Formation
State formation can be viewed as a condition for an emerging national economy. This process essentially started
in Indonesia in the nineteenth century, when the Dutch colonized an area largely similar to present-day
Indonesia. Colonial Indonesia was called ‘the Netherlands Indies.’ The term ‘(Dutch) East Indies’ was mainly
used in the seventeenth and eighteenth centuries and included trading posts outside the Indonesian archipelago.
Although Indonesian national historiography sometimes refers to a presumed 350 years of colonial domination,
it is exaggerated to interpret the arrival of the Dutch in Bantam in 1596 as the starting point of Dutch
colonization. It is more reasonable to say that colonization started in 1830, when the Java War (1825-1830) was
ended and the Dutch initiated a bureaucratic, centralizing polity in Java without further restraint. From the mid-
nineteenth century onward, Dutch colonization did shape the borders of the Indonesian nation state, even
though it also incorporated weaknesses in the state: ethnic segmentation of economic roles, unequal spatial
distribution of power, and a political system that was largely based on oppression and violence. This, among
other things, repeatedly led to political trouble, before and after independence. Indonesia ceased being a colony
on 17 August 1945 when Sukarno and Hatta proclaimed independence, although full independence was
acknowledged by the Netherlands only after four years of violent conflict, on 27 December 1949.

4.The Evolution of Methodological Approaches to Indonesian Economic History

5.A Chronological Survey of Indonesian Economic History

Current Reserve Position:

2019 129,186 million US Dollars 7.07%

Q1(b). Collect data related to macroeconomic variables for the last 05 years for a country assigned in the
following format:
 Economic Variables 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
GDP ($ billions) 2647.7 2744.9 2894.1 3116.8 3331.8 3328.2
GDP per capita 10,359 10,618 11,073 11,798 12,483 12,345
GDP Growth 4.87% 5.03% 5.1% 5.2% 5.0% -2.07%
Reserves ($ billion) 105B 116B 130B 120B 129B
Inflation rate (%) 6.3% 3.5% 3.8% 3.2% 2.8% 2.0%
Unemployment rate (%) 4.51% 4.30% 4.19% 4.51% 4.69% 4.84%
Budget Deficit (% of GDP) -2.21% -2.49% -2.51% -1.75% -2.23% -5.87%
Tax Revenue (% GDP) -9.63% -3.61% -1.99% 5.89% -4.89% -12.64%
Saving (% GDP) 30.12% 29.92% 30.79% 31.63% 33.32% 31.92%
Investment (% GDP) 34.562% 35.071% 35.389% 35.712% 36.071% 36.468%
Trade (% GDP) 41.94% 37.42% 39.36% 43% 37.30% 33.20%
Export (% GDP) 21.14% 19.12% 20.19% 20.97% 18.4%
Import (% GDP) 20.8% 18.3% 19.17% 22.03% 18.9%
Foreign Investment ($ $29.27 $29 $32.34 $27.86 $23.56 $434
billions) billion billion billion billion billion million
Exchange Rate 13,367 13,171 13,322 14,325 14,121 14,295

Q1(c). On the basis of collected data (in Assignment 1, related to different economic variables of assigned
country) give analysis on the economic performance of that country for the last 5 years focusing more on the
last year.

The Indonesian economy has recorded strong growth over the past few decades, and in recent years the firm
pace of economic expansion has been accompanied by reduced output volatility and relatively stable inflation.
Indonesia’s economic performance has been shaped by government policy, the country’s endowment of natural
resources and its young and growing labour force.
By looking at above data, we can easily analyse that Indonesia has highest rate of unemployment in the year of
2020 as compared to previous 4 years. However, inflation rate is 2.0% in 2020 which is lower than inflation in
previous years. GDP growth is the factor which indicates the growth of an economy. Indonesia has -2.07% GDP
growth rate in 2019-2020. This negative figure proves that Indonesia’s economy wasn’t doing great. This might
be because of unemployment and decline in real income. Another obvious reason could be the pandemic.
Although, the highest investment rate of Indonesia is in the year of 2019-2020. The highest negative tax
revenue in 2019-2020, shows that government has provided the money to the people below the income level
that is a good point because it could help Indonesia to move back towards employment. In addition, Indonesia
had the highest trade rate I.e., 43% in 2017-2018, it might have been increased because of high exports. While
in the last year the rate has decreased to 33.20%, the reason could be less exports and higher imports. We can
conclude that the best economic performance of Indonesia was in year of 2017-2018 as it has the highest GDP
growth rate.
Trade Chart:

Trade
50.00%
45.00% 41.94% 43.00%
39.36%
40.00% 37.42% 37.30%
35.00% 33.20%

30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Trade

GDP Growth Chart:

GDP Growth
6.00%
5.03% 5.10% 5.20% 5.00%
4.87%
5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
-1.00%

-2.00%
-2.07%
-3.00%

GDP Growth