Indonesia: economic and political overview

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

Indonesia is today configured as one of the most promising countries not only from the point of view of economic growth, 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 scene.

Indonesia is the first Islamic democracy and the largest Muslim country in the world, with a population of 229 million (the fourth largest globally). The Asian country has experienced an extraordinary process of democratic transition since 1999, passing from the economic crisis of the late 90s to the current growth, with a GDP growth that in 2010 was 6% and in 2011 will settle 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 would have a greater right than Russia to be part of the BRIC: in this regard, a new acronym has been coined, the so-called MIKT, consisting 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 the 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 remarkable) and which maintains moderate positions on Islam-related issues. Civil society, characterized by a strong religious identity, is based on the principles of a 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 which hit Asia in 1997 and which unleashed popular revolts and above all the loss of support from the military apparatus that has not repressed the street riots by force. After a phase of instability and democratic transition, real change took place 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 to guarantee political pluralism, freedom of the press, free elections. It is still a relatively poor and underdeveloped country with a high level of corruption, but the current growth leads to a certain optimism. Among the points in favor, the fact that Indonesia is not an "Islamic" state (understood in its negative sense, ie a state governed by the Sharia).

From a political-diplomatic point of view, Indonesia is building its leadership role as an example of a solid democracy with a booming 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 ensure greater stability. Jakarta has always had complicated relations with China and a strong presence of the State in the economy: today, with the end of the Cold War, relations with China are excellent (the Asian giant has contributed to driving the Indonesian economy), private investments are clearly growing and there is the emergence of a middle class that is finally getting out of poverty. Unlike other countries where economic development has not coincided with a process of democratic political evolution, Indonesia represents the case where 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 of investments in 5 years (36% covered by public funds);
– Strong domestic demand and growing middle class;
– Natural resources (hydrocarbons, minerals, vegetable oils);
– Inclusion in global production networks; regional integration; projection on international markets.

Here are the weaknesses:

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

As far as foreign trade and its relations with Italy are concerned, the main exporting countries in the Asian country are China, Singapore, Japan, the United States, Malaysia and South Korea. Italy is 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 figure concerns the constant contraction of our market share: in 2002 Made in Italy was able 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 far as Indonesian exports are concerned, the main recipient countries are Japan, China, the United States, Singapore, South Korea, India and Malaysia: Italy is in 15th place in the ranking with an increase of 43% in the past year, compared to 2009. Italy is however configured as the fourth exporting country of the European Union.

Regarding foreign direct investment, 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 most investments are transport and logistics (32.7%), mining (18%) and utilities (gas and water - 12.4%). Investments are concentrated for 43.3% in the Jakarta capital area. The main products that are imported into Indonesia are mineral fuels and mineral oils, as well as mechanical products, machines, apparatus for the generation, diffusion and control of electricity, products for the mining sector, machines for industrial use and products for construction and not only 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 lower 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 motorcycles, food and beverages, consumer goods and mechanics.

However, there are doubts in relation to the possibility of effective growth and stability of the Indonesian economy, but all the analyzes converge towards a very positive evaluation which leads to optimism. In particular, the lack of infrastructure represents an important obstacle that can turn into an excellent opportunity: the Government has already launched a program to expand, modernize and restructure the sector. Even the banking sector appears to be solid and reliable (practically it is in Chinese hands) 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 should try to design new ways of entering the country, aimed at growth and development that are not based only on mere exports. The new scenarios of internationalization, globalization and economic interdependence no longer allow it.

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