STRATEGIC ECONOMIC PLANINDONESIA

Chapter 1Introduction

OVERVIEW OF THE ECONOMY The Indonesian economy is well structured thanks to a balanced development of its industries. Agricultural or primary sector continues to contribute to GDP growth quite significantly. Industrialization occurred from mid 1980s onwards and manufacturing overtook in terms of GDP the primary sector beginning of 1990s. Within the next decade services sector experienced rapid growth and has meanwhile reached over 40% of GDP while employing one third of the work force. Diversification in export of non-oil and gas commodities strongly emerged from new industrialization and became a strong push factor of Indonesia’s economic growth.

ECONOMIC STRUCTURE

Indonesia’s economy has weathered a global economic downturn twice (1997-98 and 2008). The economy vastly relies on the agriculture, or manufacturing and services sectors for growth. Due to several natural disasters, political and social disturbances and terrorist activities, the economy has been through significant changes in the last few decades. These also led to less development employment opportunities, forcing a big chunk of the population to find employment in neighboring nations, especially Malaysia.

While growth forecasts are trimmed from the Asian Development Outlook (ADO) 2014 in April, optimism about timely reform by the incoming government and a better outlook for exports next year suggest that growth will accelerate by 0.5 percentage points in 2015.

Inflation ebbed in the first 8 months as the impact of a hike in administered fuel prices in June 2013 faded and the good harvests kept food price inflation low. For 2014 as a whole, inflation is now seen averaging 5.8%, slightly above the earlier forecast. The new government is expected to reduce fuel subsidies in 2015, which should free considerable budget funds for infrastructure and social development, though it will temporarily push inflation to 6.9%, above the earlier projection.

TRADE STRUCTURE

Indonesia is ranked 69 with an Economic Complexity Index (ECI) of -0.0199196Indonesia is the top exporter of palm oil, soap, coconut oil, margarine, raw tin, non- iron, steel slag, ash and residues, nickel ore, aluminum ore and lignite.

Top 5 Products exported by Indonesia

Coal Briquettes (12%), Petroleum Gas (9.3%), Palm Oil (8.3%), Crude Petroleum (5.9%), Rubber (4.1%)

Top 5 Products imported by Indonesia

Refined Petroleum (15%), Crude Petroleum (5.5%), Planes, Helicopters, Spacecraft (2.4%), Vehicle Parts (1.8%), Cars (1.5%)

Top 5 Export destinations of Indonesia

Japan (15%), China (12%), Singapore (9.1%), United States (8.4%), South Korea (7.2%)

Top 5 Import origins of Indonesia China (16%), South Korea (6.9%), Malaysia (6.1) Japan (11%), Singapore (14%),

THEORIES AND APPROACHES OF ECONOMIC DEVELOPMENT

a. Neocolonial Dependence Modelb. Sen’s Capabilities Approachc. Harrod- Domar Growth Modeld. Rostow’s Stages of Growthe. Structural Change Modelf. Lewis Modelg. Agriculture and Employment based Strategy

VISION 2025The researchers wants to achieved the following

goals in year 2025.

1. Increase the expansion of value chain for industrial production process

2. More universities.3. Increase in efficiency of the distribution network of

products in manufacturing and agricultural sectors4. Globally competitive5. Largest producer of renewable resources.

Increase the expansion of value chain for industrial production process.

Lewis Theory of DevelopmentIt became the general theory of the development process. It states that the structural change of economy will help to develop it.

Structural Change TheoryIt focuses on the mechanisms by which underdeveloped economies transform their domestic economic structures from a heavy emphasis on traditional subsistence agriculture to a more modern, more urbanized and more industrially diverse manufacturing and service economy.

More universities.

Harrod- Domar Growth Model It states that the more capital

investments from the national income will help to develop the economy of a country.

Increase in efficiency of the distribution network.Globally competitive.

Neocolonial Dependence ModelIt attributes the existence and continuance of

underdevelopment primarily to the historical evolution of a highly and equal international capitalist system of rich country, poor country relationship.

Sen’s Capabilities ApproachThink beyond the availability of commodities and consider

they use to address their functions.

Agricultural and Employment Based Strategy

Largest producer of renewable resources.

Structural Change TheoryIt focuses on the mechanisms by which underdeveloped economies transform their domestic economic structures from a heavy emphasis on traditional subsistence agriculture to a more modern, more urbanized and more industrially diverse manufacturing and service economy.

CHAPTER IIEXISTING SITUATION OF KEY

ECONOMIC SECTORS IN INDONESIA

EXISTING STATUS OFKEY ECONOMIC SECTORS

Primary Sector.While being the biggest employment sector of the

country, agriculture includes three types of farming. Some of the major produce of Indonesia includes rice, tea, coffee, cocoa, spices, rubber, copra, peanuts, eggs, pork, poultry and palm oil. Some crops are cultivated mainly due to the even distribution of rainfall and consistent monsoon climate in Indonesia. The country is the 4th largest producer of rice and coffee in the world. It exported 271,000 tons of coffee in 2010.

Secondary Sector. The manufacturing sector of Indonesia contributes 27.9%

to the country’s GDP. The industrial production rate in the country stood at 2% as of 2009. Some of the major industries in the country are petroleum refinery industry, liquefied natural gas, textile leather products and footwear, wood and wood products, paper and printing products, cement and non-metallic quarry, iron, steel and other basic metals, transport equipment, machinery and apparatus, and other manufacturing industries.

Tertiary Sector.With 38.5% contribution to the country’s GDP, the services

sector remains a pillar of Indonesia’s economy. The growing IT services sector was impacted to some extent by the global economic downturn in the late 2000s. The country’s hospitality industry is a big booster of the economy.

CHAPTER IIIRECOMMENDATIONS ON THE

EXISTING KEY ECONOMIC SECTORS OF INDONESIA

A. AGRICULTURE SECTOR1.) Areas of Developmental Concerns Lack of market information and distribution channels. Lack of capital to finance agricultural activities. Preference of poor Indonesians to choose fishing over

agricultural activities.

2.) Possible Areas of Enhancement Encouraged to undertake garden farming to farm crops for

their consumptions. Training and education of farmers Helping island farms to secure funding their agricultural

activities.

B. MANUFACTURING SECTOR 1.) Areas of Developmental Concerns Lack of equipment and machineries in processing of

construction products Low investments in production of motor vehicles Low investments in the workforce Mine flooding

2.) Possible Areas of Enhancement Permission to enter the foreign investors or capitalist Import the updated technology in coal mining facilities Invite multi- national companies and investors to invest in

production of different vehicles to enhance the technology production

C. SERVICES SECTOR

1.) Areas of Developmental Concerns Lack of education Low skilled workers Insufficient experiences in line with their attained education Inequality in jobs

2.) Possible Areas of Enhancement Support universities Secure funding for education Increase productivity Trainings and seminars Balanced number of awards provided to men and women

CHAPTER IVRESEARCH FINDINGS

and CONCLUSION

A. Research FindingsThe researchers findings are based on the data and

information gathered.• Indonesia economy is well- structured.• Agricultural or primary sector continues to contribute

to GDP growth quite significantly.• Use a balance of multi-bilateral cooperation mode.• Financial macroeconomic policy makes resilient the

global financial crisis of Indonesia in 2008-2010.• Indonesia’s recent economic growth is based in

domestic consumption.• Indonesia improved energy supply through increased

use of renewable forms of energy.

B. Research ConclusionThe researcher would like to conclude the following to become

fully developed country the Indonesia.• Indonesia has grown strongly since 2010.• The government also faces the challenges of quelling labor

unrest.• Indonesia increase the energy production as their national

priority.• Indonesia wants to maintain the food security.• Indonesia would like to improved each livelihood

opportunities and improved health and education development outcomes.

• Indonesia government need to improve interconnectivity across regions within the country to help reduce logistic costs to support domestic supply chain.