Indonesia Set to Become Trillion-Dollar Economy in Two Years

Indonesia will become Asia’s next trillion-dollar economy, joining the ranks of South Korea, Japan and China. The economy is set to grow at an annual 5.4 percent from 2016 to 2020.

Indonesia will become Asia’s next trillion-dollar economy, joining the ranks of South Korea, Japan and China. The economy is set to grow at an annual 5.4 percent from 2016 to 2020.

Indonesia’s GDP stands at $870 billion, but will expand to $1.14 trillion by 2017. From there, Indonesia will double to $2.1 trillion when 2023 arrives, which will outgrow Australia’s current GDP of $1.52 trillion. The Indonesian economy will grow larger than Russia or Spain in 2023. The country’s rising status will give Indonesian officials a bigger voice in such international bodies as the IMF, World Bank and G-20. The expansion also gives Indonesia a wider reach into international markets that include manufacturing and natural resources, creating an array of investment and trade opportunities along the way. The nation will remain an emerging market in the next decade, but GDP per capita is poised to grow from $3,400 to $8,700 in 2025, making Indonesia one of the biggest emerging nations in the world.

Indonesian Roadblocks

The data is great news for Indonesia, but various barriers stand in the way of the country’s overall success. First, foreign investors have a hard time getting permits to operate in the country, taking as much as three years at times. Investors complain of weaving through multiple government agencies to get simple permits and licenses, but President Joko Widodo promises reform efforts in the form of a “one-stop shop” for attaining the necessary paperwork.

Another problem is protectionism, with some sectors of the economy closed off to foreign investment. Officials also spoke of requiring foreign workers to learn the Indonesian language before working in the country. Such a policy would shut out many foreign workers who have the necessary skills to contribute to the economy, and a foreign work presence is all the more necessary because of the country’s low level of skilled workers. Less than 10 percent of Indonesians have a college or trade school education. Although wage growth in Indonesia grew at a staggering 12 percent per year since 2011, work productivity expanded at a pace of only four percent. Indonesia also faces additional problems in the form of stringent labor standards and corruption, which are additional factors that keep foreign investors at bay.

Reform Efforts

Indonesia has solid projections, but the nation has murky track record to overcome. However, Indonesia has an excellent future in the short-term as well. In addition to the country’s long-term potential, the economy grew five percent for 2015, mostly due to such factors as a rise in exports and a solid exchange rate, and analysts expect additional growth for 2015 and 2016. Officials stress reform, but analysts do not foresee swift changes happening anytime soon.

Indonesians must also commence additional infrastructure projects. Authorities have not constructed a new railway system since the Dutch ruled the land as a colony over 70 years ago. The government should also do more to attract more foreign investors to instill long-lasting growth. As excellent as Indonesia’s long-term picture may be, officials must address the nation’s short-term problems before moving into the next decade.