STRUCUTURE OF THE ECONOMY
All the three sectors play an important role in Indonesian economy giving it a proportionate
look. Agriculture (including animal husbandry, fishing and forestry) has historically been the dominant activity in terms of both employment and output. The country has a vast range of mineral resources, which have been exploited rapidly over the past three decades, enabling the mining sector to make an important contribution to the balance of payments. The manufacturing sector began a rapid expansion in the mid-1980s, and in 1991 the share of manufacturing in GDP exceeded that of the agricultural sector for the first time.
Recently the manufacturing accounted for 43.6% of total output and the services sector has contributed to 39.9% of GDP and employed more than one-third of the working population. Share of three sectors in labour force are- agriculture 45%, industry 16%, services 39% (1999 est.)
Since the late 1980s, Indonesia has made significant changes to its regulatory framework to encourage economic growth. This growth was financed largely from private investment, both foreign and domestic. U.S. investors dominated the oil and gas sector and undertook some of Indonesia's largest mining projects. In addition, the presence of US Banks, manufacturers, and service providers expanded, especially after the industrial and financial sector reforms of the 1980s. Other major foreign investors included Japan, the United Kingdom, Singapore, the Netherlands, Hong Kong, Taiwan, and South Korea.
Indonesia's economic outlook looks promising in 2005. Economic growth accelerated to about 5.1% in 2004 and is expected accelerate further in 2005. The GDP per capita has reached pre-crisis levels.
Growth is driven primarily by domestic consumption, which accounts for roughly three-fourths of Indonesia's gross domestic product. The Jakarta Stock Exchange was the best performing market in Asia in 2004, up some 42%.
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Problems that continue to put a drag on growth include low foreign investment levels, bureaucratic red tape, and widespread corruption. However, there is very strong optimism with the conclusion of peaceful elections during the year 2004 and the election of the reformist president Susilo Bambang Yudhoyono.
ROLE OF MARKET vs GOVERNMENT
Indonesia has a market-based economy in which the government plays a significant role. It owns more than 164 state-owned enterprises and administers prices on several basic goods, including fuel, rice, and electricity.
Indonesia, the only Asian member of the Organization of Petroleum Exporting Countries (OPEC), ranks 15th among world oil producers, with about 2.4% of world production. The state owns all oil and mineral rights In the aftermath of the financial and economic crisis that began
in mid-1997, the government took custody of a significant portion of private sector assets through acquisition of non-performing bank loans and corporate assets through the debt restructuring process.
The financial problems that swept into Indonesia in late 1997 became an economic and political crisis and led to fall of President Suharto. The effects of the financial and economic crisis were severe. In 1998, real GDP contracted by an estimated 13.7%. The economy bottomed out in mid-1999, and real GDP growth for the year was an anemic 0.3%. Inflation reached 77%in 1998 but slowed to 2% in 1999. The rupiah, which had been in the Rp 2,400/USD1 range in 1997, reached Rp 17,000/USD1 at the height of the 1998 violence. It came down to the Rp 6,500-8,000/USD1 range in late 1998 and has traded in the Rp 6,500-9,000/USD1 range since, with significant volatility.
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