FOREIGN TRADE
The disposable income in Indonesia has been at low levels. This has led to exports being the
primary engine of growth. Before the mid-1970s exports consisted of small number of primary commodities, including natural rubber, coconut oil and copra, tin, and crude oil. The decline in petroleum prices after 1983 resulted in a concerted push towards industrialisation, as a result of which semi-processed and manufactured products increasingly came to dominate exports. Currently, the main exports commodities include oil and gas, plywood, textiles and rubber. A determined effort to promote tourism since the mid-1980s has also had a big impact on services export earnings.
The countries to which most of Indonesian exports are designed are Japan 22.3%, US 12.1%, Singapore 8.9%, South Korea 7.1%, China 6.2% (2003). The chief import partners are Japan 13%, Singapore 12.8%, China 9.1%, US 8.3%, Thailand 5.2%, Australia 5.1%, South Korea 4.7%, Saudi Arabia 4.6% (2003). Indonesia mainly imports machinery and equipment, chemicals, fuels and foodstuffs.
CHALLENGES FACING INDONESIA
There has been a massive mayhem faced by Indonesia in past few years. It faced the Asian financial crisis during 1997, then the fall of President Suharto after 32 years in office, the first free elections since the 1960s, the loss of East Timor, independence demands from restive provinces, bloody inter-ethnic and religious conflict and a devastating tsunami disaster.
While globalization reaped the tremendous rewards of the opportunities into Indonesia, it also made Indonesian economy a victim of its enormous risks. For almost two decades prior to the crisis of mid 1997, Indonesian economy had bounded ahead at unprecedented rates, reducing country's poverty levels from over 60% to less than 15% of the population by 1997. Then, in that year, as the Asian financial crisis struck with crippling speed and impact, economy came cascading down and resulted in enormous social and political upheaval. Poverty and unemployment soared, children left school in droves and the national debt reached new and staggering heights.
Thus, over and above domestic and international efforts, is the need to strengthen the financial system itself. Failure to put finance for development on an assured and predictable basis and the sudden eruptions of financial crises points directly to systemic failure at the global level. Therefore, there is an urgent need to build and ensure good governance at the international level and effective transparency in the financial, monetary and trading systems if the mobilization
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of domestic and international financial flows are to be successful.
Indonesia human development ranking remains low and thus, this is one area, which requires urgent attention. Though, access to primary education was high, achieving high primary school retention rates and reducing high repetition rates are continuing challenges. The transition rate from primary to junior secondary education and the dropout rate at that level also remained unsatisfactory.
Also, there a critical need to restore public trust and investor confidence, and ensure continued support by Indonesia's development partners. Virtually every sector of the economy faces governance challenges. Genuine commitment to reform must be reflected in forceful implementation.
Another challenge is to reduce income disparity among its people. Basic poverty and development indicators showed a wide dispersion across regions. Metropolitan Jakarta, with its infrastructure and its role as a center of manufacturing and high value-added services, has broader access to basic services and a much lower incidence of poverty than other areas. In sharp contrast, Nusa Tenggara Timur (NTT) and Irian Jaya have incidences of poverty more than 10 times that of Jakarta.
TSUNAMI IMPACT
The two regions that were worse hit by tsunami disaster, which hit Indonesia on
26 December, are Aceh and North Sumatra. According to Government initial estimate, at least 94,000 people had died and 132,000 were missing. The number of displaced persons is expected to be about 500,000, or 11% of the province population.
Total damage from the tsunami is estimated at $4.5 billion - almost equal to the entire GDP of Aceh - according to a preliminary damage assessment prepared by the Indonesian Government, World Bank, ADB, and other development partners. Ecosystems and agricultural lands are likely to have been affected. This will have a major impact on the poor as agriculture provides 32% of provincial gross domestic product.
About 10-15% of the total crop area is likely to have been damaged, according to the Ministry of Agriculture. Also damaged were education and health facilities and coastal roads. Over 150,000 students and 12,000 teachers have been affected.
In the transport sector, initial Government assessments indicate that major sections of the Banda Aceh-Lamno-Meulaboh road (about 230 kilometers out of the total length of 243 kilometers) have been damaged. In the energy sector, the state-run PLN has estimated that 1,100 circuit-kilometers (CKM) of medium-voltage and 1,750 CKM of low-voltage distribution lines may have to be replaced.
While Indonesia has been severely affected in terms of losses of human life and displacement, the overall Indonesian economy will be barely affected. Aceh accounts for around 2% of Indonesia's GDP and population, and the largely undamaged oil and natural gas sectors contribute around half of Aceh's GDP. Thus, fueled by stronger domestic consumption and investment, the country's economy is expected to expand by 5.5% in 2005, despite the December tsunami, and 6.0-6.5% in the following two years, according to ADB's Asian Development Outlook.
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