Indonesia: economic and political overview

Discovering Indonesia: political and economic overview of one of the main countries in the ASEAN area.

Indonesia today appears to be one of the most promising countries not only from an economic growth point of view, but also from a political point of view, and according to analysts it is destined to play an increasingly important role in the global scenario in the future . There are many factors that will make this country a leading player on the international stage.

Indonesia is the first Islamic democracy and the largest Muslim country in the world, with a population of 229 million inhabitants (the fourth largest globally). The Asian country has experienced an extraordinary process of democratic transition since 1999, moving from the economic crisis of the late 90s to the current growth, with GDP growth which in 2010 was 6% and in 2011 it will stand at +8%: objective set by the Government, to maintain stable annual growth of 7-8% until 2013.

Indonesia is part of the G-20 and many analysts argue that it has a greater right than Russia to be part of the BRIC: for this purpose a new acronym has been coined, the so-called MIKT, made up of Mexico, Indonesia, South Korea and Turkey. It is an ambitious, open country, leader of ASEAN (Association of Southeast Asian Nations), with a foreign policy that looks beyond Asian borders, which has good relations with the USA, Russia, China (however the competitive gap from bridging with the two big Asians, China and India, is still notable) and which maintains moderate positions on issues related to Islam. Civil society, characterized by a strong religious identity, is based on the principles of liberal Islam in which human and women's rights are guaranteed.

The turning point for Indonesia occurred in 1998 with the end of the Suharto regime: the collapse of the regime was favored by the financial crisis that hit Asia in 1997 and which triggered popular revolts and above all the loss of support from military apparatus that did not repress the street riots by force. After a phase of instability and democratic transition, the real change occurred in 2004 with the election of Susilo Bambang Yudhoyono, leader of the Democratic Party and main architect of the political-economic-institutional reforms that allowed the country's development. Yudhoyono also managed to limit the impact of the 2008 financial crisis and guarantee political pluralism, freedom of the press and free elections. It is still a relatively poor and underdeveloped country with a high level of corruption, but the growth underway leads to a certain optimism. Among the plus points is the fact that Indonesia is not an "Islamic" state (understood in its negative sense, i.e. a state governed by Sharia).

From a political-diplomatic point of view, Indonesia is building its own leadership role as an example of a solid democracy with a rapidly expanding economy. Within ASEAN, of which it is the leading country, Indonesia is taking decisive steps towards a greater push towards the democratization of the area (Myanmar in particular) to guarantee greater stability. Jakarta has always had complicated relations with China and a strong state presence in the economy: today, with the end of the Cold War, relations with China are excellent (the Asian giant contributed to driving the Indonesian economy), the private investments are clearly growing and there is the emergence of a middle class that is finally emerging from poverty. Unlike other countries in which economic development has not coincided with a process of democratic political evolution, Indonesia represents the case in which economy and democracy have been the two main actors of development.

These are the strengths of the Indonesian economy:

– Opening of economic sectors by government;
– 140 billion in investments in 5 years (36% covered by public funds);
– Strong internal demand and increase in the middle class;
– Natural resources (hydrocarbons, minerals, vegetable oils);
– Insertion into global production networks; regional integration; projection on international markets.

Here are the weaknesses:

– Lack of transparency of the legal system;
– High corruption in local businesses and entrepreneurship;
– Persistence of significant social inequalities;
– Risk of a general increase in prices;
– Lack of modern infrastructure (need of 100 billion USD for the next few years).

As regards foreign trade and its relations with Italy, the main exporting countries in the Asian state are China, Singapore, Japan, United States, Malaysia, South Korea. Italy ranks only in twenty-third place with a share of market equal to 0.7%. Italian exports to Indonesia increased by 25% in 2010 compared to the previous year, but the worrying fact concerns the constant contraction of our market share: in 2002 Made in Italy managed to export 1.3% of the total. This means that Italian exports increase because Indonesian imports increase (+40% in 2010 compared to 2009) but we continue to lose positions compared to other competitors. As regards Indonesian exports, the main recipient countries are Japan, China, the United States, Singapore, South Korea, India and Malaysia: Italy appears in 15th place in the ranking with an increase of 43% in the past year, compared to 2009. However, Italy is the fourth largest exporting country in the European Union.

Regarding foreign direct investments, the main investor in Indonesia is Singapore (29.5%), followed by Hong Kong (10.2%) and the United States (10.2%): the sectors that attract the majority of investments are transport and logistics (32.7%), mining (18%) and utilities (gas and water – 12.4%). Investments are concentrated for 43.3% in the capital area of Jakarta. The main products imported into Indonesia are mineral fuels and mineral oils, as well as mechanical products, machines, equipment for the generation, diffusion and control of electricity, products for the mining sector, machinery for industrial use and construction products and not just as pipes, compressors, pumps.

Italian exports are aimed at the medium-high segment of the population and mainly concern the instrumental mechanics sector followed at a long distance by metal products, electrotechnical and electronic products, chemical products, means of transport, leather and footwear; Italian imports, which are concentrated towards the low segment, concern in particular raw materials (vegetable oils, fossil coal, natural rubber). The most interesting opportunities for Made in Italy concern the sectors of fashion, cars and motorbikes, food and drinks, consumer goods and mechanics.

However, there are doubts regarding the possibility of actual growth and stability of the Indonesian economy, but all analyzes converge in any case towards a very positive assessment that leads to optimism. In particular, the lack of infrastructure represents an important obstacle that can be transformed into an excellent opportunity: the Government has already launched a program to expand, modernize and restructure the sector. Even the banking sector appears solid and reliable (it is practically in the hands of the Chinese) and there is no religious pressure capable of limiting it.

Ultimately, Italy should try not to lose the possibilities offered by the Indonesian market and above all it should try to plan new ways of entering the country, aimed at growth and development that are not based only on mere exports. The new scenarios of internationalisation, globalization and economic interdependence no longer allow this.

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