Indonesia has made a remarkable economic comeback. Yet, its amazing growth is neither sustainable nor inclusive.
A few years ago, I was sitting in a swanky bar in South Jakarta popular with expats and Indonesian bureaucrats, sipping red wine for $25 a glass. During a discussion about the state of affairs in the country, my reference to Indonesia as a “Third World” country triggered an angry reaction by an Indonesian diplomat working for the Ministry of Trade. “Indonesia is no longer a poor country,” she rebutted, quoting various studies that placed Indonesia firmly in the group of emerging economies and went on to argue that the “I” in BRIC should belong to Indonesia rather than India. The acronym MIST to describe the next tier of large emerging economies had not yet been coined at the time.
Indeed, Indonesia has made a remarkable comeback from being Southeast Asia’s economic basket case in 1998 to an emerging market whose economy has been growing annually at more than 5 percent for several years. In reaction, analysts and journalists alike have been outdoing one another with positive assessments of Indonesia’s economic growth trajectory. The writing frenzy recently culminated in an article published in The Guardian, a UK daily, which claimed that Indonesia’s economy may surpass England and Germany in a few years. “It’s like people don’t want to hear anything else,” a foreign journalist based in Jakarta whom I had sent the article told me afterwards, lamenting how she finds it increasingly difficult to pitch stories to newspaper editors that cast doubt on Indonesia’s economic miracle.
Yet, Indonesia’s economic growth is neither sustainable nor inclusive.
An inconvenient fact is that Indonesia’s economic growth is mainly driven by a commodity boom fuelled by China’s appetite for raw materials and global demand for biofuels. China’s enterprises are building bullet trains while Indian car- and IT-companies compete around the world. Indonesia, all the while, manufactures…essentially nothing. Most international manufacturing companies have moved on to greener pastures a long time ago while domestic companies are unable to compete internationally with the exception of a few conglomerates run by crony capitalists from the New Order period.
The other main driver of Indonesia’s economic growth is domestic consumption. This is mostly driven by easy access to credit cards. Since the mid-2000s banks have been successful in convincing Indonesians, much like their American counterparts, to buy stuff they don’t need, with money they don’t have to impress people they don’t know. The amount of credit cards in circulation, which have increased 7 to 8 percent annually, reached such staggering heights in recent years that Bank Indonesia had to introduce new guidelines last year to limit the number of credit cards a single person is allowed to hold. The same guidelines also stipulated that Indonesians earning less than U.S.$330 a month should no longer receive credit cards.
Photo Credit: flickr (Mat Coates)
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investor
Indonesia to discredit your writing, I really do not think quality, impressed by the thought made you personally. seems so stupid. you may write the above article, that investors hesitate to invest in Indonesia. but I think investors are smart enough to judge, and not be fooled by your article. Indonesian economy is very strong against the crisis, the crisis of U.S. and European crisis, your accusations are false about the Indonesian economy, it is unreasonable. Indonesian economy rests on the strong purchasing power of the people, so that the world economic crisis has no effect on the Indonesian economy. some economic survey, predict Indonesia will enter the order of the world's top 10 economies by 2030.
khodi
well, all are the facts, the economy still centralized in Java Islands, prefer to mega infrastructure rather than development outside Java, with country that has abundant of natural resources, we still import salt, , casava, onion. People at the border still depend on neigbor country's subsidize goods. Elite politics fighting for group and personal interest. However, am pretty sure that the people of this1 trillion GDP country , will fight for the best for their country and Indonesia will prevail :)
KuKuKaChu
Similar sentiments were expressed recently with this interview with the head of an Indonesian business consultancy: http://okusi.net/garydean/works/MeetGaryDean.html
drift
Clearly the economic analysis in this article is lack of strong foundation and fact, but fueled by political tendencies.
Even a car bumper stickers could lead the author's opinion about Indonesia economy.
Please, do your expertise in your field.
Since you are expert in Political Science, you are potentially misleading at reviewing economic with your political tendencies.