Indonesia Norway Business Council
Indonesia Norway Business Council

Economy

Under the "New Order"

GDP per capita grew 545% from 1970 to 1980 as a result of the sudden increase in oil export revenues from 1973 to 1979. However, in the 1980s oil glut, the GDP per capita shrank 20% from 1980 to 1990 and by 13% from 1990 to 2000. [7]

During the thirty years of president Suharto's "New Order" government, Indonesia's economy grew from a per capita GDP of $70 to more than $1,000 by 1996. Through prudent monetary and fiscal policies, inflation was held between 5%–10%, the rupiah was stable and predictable, and the government avoided domestic financing of budget deficits. Much of the development budget was financed by concessional foreign aid.

In the mid-1980s, the government began eliminating regulatory obstacles to economic activity. The steps were aimed primarily at the trade and finance sectors and were designed to stimulate employment and growth in the non-oil export sector. Annual real GDP growth averaged nearly 7% from 1987–1997, and most analysts recognized Indonesia as a newly industrialized economy and emerging market.

High levels of economic growth from 1987–1997 masked a number of structural weaknesses in Indonesia's economy. The legal system was very weak, and there was no effective way to enforce contracts, collect debts, or sue for bankruptcy. Banking practices were very unsophisticated, with collateral-based lending the norm and widespread violation of prudential regulations, including limits on connected lending. Non-tariff barriers, rent-seeking by state-owned enterprises, domestic subsidies, barriers to domestic trade and export restrictions all created economic distortions.

 

Asian Financial Crisis

The Asian Financial Crisis that began to affect Indonesia in mid-1997 became an economic and political crisis. Indonesia's initial response was to float the rupiah, raise key domestic interest rates, and tighten fiscal policy. In October 1997, Indonesia and the International Monetary Fund (IMF) reached agreement on an economic reform program aimed at macroeconomic stabilization and elimination of some of the country's most damaging economic policies, such as the National Car Program and the clove monopoly, both involving family members of President Suharto. The rupiah remained weak, however, and President Suharto was forced to resign in May 1998. In August 1998, Indonesia and the IMF agreed on an Extended Fund Facility (EFF) under President B.J Habibie that included significant structural reform targets. President Abdurrahman Wahid took office in October 1999, and Indonesia and the IMF signed another EFF in January 2000. The new program also has a range of economic, structural reform and governance targets.

The effects of the financial and economic crisis were severe. By November 1997, rapid currency depreciation had seen public debt reach US$60 bn, imposing severe strains on the government's budget.[8] In 1998, real GDP contracted by 13.7%. The economy reached its low point in mid-1999 and real GDP growth for the year was 0.3%. Inflation reached 77% in 1998 but slowed to 2% in 1999.

The rupiah, which had been in the Rp 2,600/USD1 range at the start of August 1997 fell to 11,000/USD1 by January 1998, with spot rates around 15,000 for brief periods during the first half of 1998[9]. It returned to 8,000/USD1 range at the end of 1998 and has generally traded in the Rp 8,000–10,000/USD1 range ever since, with fluctuations that are relatively predictable and gradual.

Consisting of more than 17,000 islands, the vast Indonesian archipelago spans 5,120 km across the equator, positioned between the Asian and Australian continents.  Four-fifths of the area is sea with the major islands of Sumatera, Java, Kalimantan, Sulawesi and Papua.  The 300 ethnic groups that exist harmoniously give birth to a potpourri of cultures and fascinating people.  The major ethnic groups are: Minangkabaunese, Malay, Javanese, Sundanese, Maduranese and Ambonnese.  Arab, Chinese and Indian immigrants have also settled in regions throughout the country, particularly in the coastal cities.
Geographically, Indonesia's landscape is greatly varied.  Java and Bali have the most fertile islands and rice fields are concentrated in these two regions, whereas Sumatra, Kalimantan, Sulawesi, Maluku and Papua are still largely covered with tropical rainforest.  Open savannah and grassland characterize Nusa Tenggara.
The lowland that comprise most of Indonesia has a characteristically tropical climate with abundant rainfall, high-temperatures and humidity.  Rainy Indonesia's tropical climate and unique geographical character provide shelter for flora and fauna that are as diversely rich as its land and people.  The plant and animals in Indonesia's western region represent that of mainland Asia while those in the eastern region are typical of Australia.  Endemic species, which are the pride of Indonesia exist in the central region, such as orangutans, tigers, one-horned rhinos, elephants, dugongs, anoas and komodo dragons.  The warm tropical waters of the archipelago nurture a rich marine environment that holds a myriad of fish, coral species and marine mammals.
A cultural heritage passed on through generations offers a wealth of traditional arts and crafts.  Batik, wooden carvings, weavings, silverworks and many other traditional skills produce exquisitely beautiful items.  Indonesia's multi-racial and multi-religious culture mean festivals steeped in traditions are celebrated throughout the year.  Frequently featured in these events are dances, wayang theaters and other performing arts
Information provided by the Indonesia Embassy


Executive Partners and Sponsors

Please contact INBC - Indonesia Norway Business Council at Phone +62215763343 or E-mail execsec@inbc.web.id
Incorporated 2009 by Decree AHU-4354 AH-01-04