Indonesia: The Next Economic Superpower?

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The Indonesian economy has been described as a “phoenix rising”, according to a recent report published by Nomura on June 7, 2011. 

In its report, Nomura stated its belief that Indonesia will see GDP growth averaging over 7 percent in the next five years, where “current momentum will be augmented by incremental reforms and progress on infrastructure development”.

The recently published Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI) is also aiming for the country to become one of the top ten largest economies in the world by 2025.

Some of the goals for MP3EI include:

- To raise average annual growth to 8-9 percent between 2015 and 2025

- Reduce inflation from 6 percent  to 3 percent by the middle of the next decade.

- US$468.5 billion in investments to be made over the next 14 years, including in infrastructure work.

- US$63.72 billion of government cash earmarked for investment to 2025, and supplemented by US$97.93 billion from state firms. 

The Indonesian economy has been on a rebound ever since the 1997 Asian Financial Crisis nearly decimated the economy and placed it on the brink of a complete collapse.

Between 2000 and 2010, Indonesia’s average GDP growth rate (constant prices, national currency) was 5.231 percent. Indonesia’s GDP (current prices, US dollars) has also grown by more than six folds from US$105.469 billion in 1998 to US$706.735 billion in 2010.

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Jakarta's recent hosting of the World Economic Forum from June 12-13 has also been seen as a success and is a testament to its rising economic power.

However Nomura warns that the “fundamental institutional reforms (of the electoral system and judiciary, among others) required to realise the economy’s full potential are likely to be slow-moving and dominated by imperatives for stability and consensus building during the rest of President Yudhoyono’s administration”.

Indonesian President Susilo Bambang Yudhoyono has also identified “five diseases that can make us (Indonesia) fail… including slow bureaucratic processes, conflicting interests in regional government (Indonesia has undergone a process of devolution in recent years), obstructive regulations, broken promises to investors and “unhealthy” political factors.”

Indonesia is currently the 18th largest economy in the world according to GDP (current prices, US dollars) and the 15th according to GDP (PPP). In 2010, Indonesia’s GDP growth rate (constant prices, national currency) stood at 6.105 percent.