Economic and Political Overview

flag Indonesia Indonesia: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

Indonesia is seen as a future economic giant. It is the largest economy in Southeast Asia and the world's seventh by purchasing power parity (IMF). In 2023, the real GDP growth closely approached the approximately 5% average annual rate attained since 2000. By the end of the third quarter, the manufacturing sector sustained its expansion, albeit at a slightly moderated yet robust pace, while the hotel occupancy rate from January to July surpassed pre-pandemic levels. The country is anticipated to sustain rapid and stable growth throughout the projection period. Improved labour market conditions, reduced inflation rates, and enhanced investor sentiment will bolster both consumption and investment, counterbalancing the challenges posed by a subdued global trade environment. Moreover, the tourism sector is expected to witness ongoing recovery, with increasing arrivals and average expenditures contributing positively to economic dynamics. For 2024 and 2025, the OECD forecasts a growth rate of 4.9% and 5.2% of GDP, respectively.

After experiencing a widening of the budget deficit during the pandemic, authorities have intensified fiscal consolidation efforts since 2022. The IMF estimated the government’s budget deficit at 2.2% in 2023; while the 2024 budget aims for a deficit of 2.3% of GDP, with a commitment to maintaining a neutral fiscal stance in the foreseeable future. Public debt has shown a significant improvement since the Asian Financial Crisis in 1998 (it reached up to 150% of GDP), and stood at 39% of GDP as of 2023. The IMF expects the debt ratio to further decrease to 38.2% by 2025, although still above the 2019 level of 30.6%. The impact of Bank Indonesia's previous six-step increase of the policy rate is becoming more evident, as inflation (at 3.6% in 2023) now aligns within the target range (3.0% consumer price inflation with a ±1% corridor). Nevertheless, the Rupiah's depreciation amid rising global uncertainty prompted the central bank to implement another policy rate hike in October. Given current assumptions in commodities markets and barring escalation of global tensions, Bank Indonesia is poised to execute the first rate cut around mid-2024. The IMF expects the inflation rate to hover around 2.5% over the forecast horizon.

The number of unemployed persons has fallen below 8 million and the jobless rate stood at 5.3% in 2023 with a stable outlook for the near future. Indonesia has achieved enormous gains in poverty reduction, cutting the poverty rate by more than half since 1999, to approximately 9.5% of the population in 2022. While the average GDP per person (PPP) was estimated at USD 15,834 in 2023 by the IMF, the country has still one of the fastest-rising inequality rates in the East Asia region according to World Bank.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 1,318.811,417.391,542.371,670.631,805.25
GDP (Constant Prices, Annual % Change) 5.35.05.05.05.0
GDP per Capita (USD) 4,7985,1095,5095,9156,337
General Government Balance (in % of GDP) -2.1-2.2-2.2-2.1-2.1
General Government Gross Debt (in % of GDP) 40.139.038.638.237.9
Inflation Rate (%) n/a3.62.52.52.5
Unemployment Rate (% of the Labour Force) 5.95.35.25.15.1
Current Account (billions USD) 12.67-3.72-9.83-17.34-21.00
Current Account (in % of GDP) 1.0-0.3-0.6-1.0-1.2

Source: IMF – World Economic Outlook Database, Latest data available.

Note : (E) Estimated data

 

Main Sectors of Industry

Indonesia is a market economy with abundant natural resources, a young, large and burgeoning population (279 million), a labour force of 137.2 million people in 2022, and political stability. The country changed from being an economy that was highly dependent on agriculture into a more balanced economy which is lessening its traditional dependency on primary exports. The agricultural sector contributes to 12.4% of the country’s GDP and employs 29% of the active population (World Bank, latest data available). Indonesia is the second-largest natural rubber producer in the world. Other major crops include rice, sugarcane, coffee, tea, tobacco, palm oil, coconuts and spices. Besides, the country is the world's biggest nickel ore producer and has become a major exporter of stainless steel. Indonesian land area used for agriculture has been growing and is currently around 30%. This is mainly due to the establishment of large-scale plantations - in particular for palm oil production (second-largest export). According to data from FAO, 2023 paddy production was estimated at a below‑average level of 53.3 million tonnes, while maize crop production hit 21.5 million tonnes as large sowings driven by strong demand by the poultry industry almost entirely offset reduced yields due to dryness.

Industry contributed approximately to 41.4% of GDP and employed over 22% of the labour force in 2022 (World Bank). The Indonesian industrial sector encompasses a diverse range of industries contributing significantly to the country's economy. Key sectors include manufacturing, which encompasses textile and garment production, automotive manufacturing, and electronics assembly, with notable hubs in cities like Jakarta, Surabaya, and Bandung. The mining industry, particularly in coal, palm oil, and natural gas extraction, remains a crucial pillar of Indonesia's industrial landscape, driving export revenues. Moreover, the country is witnessing the emergence of renewable energy as an increasingly important sector, with investments in solar, wind, and hydroelectric power projects aimed at diversifying the energy mix and reducing dependence on fossil fuels. Infrastructure development and construction also play pivotal roles in Indonesia's industrial growth, spurred by ongoing urbanization and investment in transportation networks. Additionally, technology-driven sectors such as information technology (IT) and telecommunications are experiencing rapid expansion, fueled by a growing digital economy and increasing connectivity.

The service sector contributes to 41.8% of the GDP and employs around 49% of the active population (World Bank). Key sectors include tourism, which capitalizes on Indonesia's rich cultural heritage and natural landscapes, drawing millions of visitors annually (as of November, the number of foreign tourist arrivals in 2023 reached 10.4 million, an increase of 110.86% as compared to the same period one year earlier), finance, telecommunications, and retail, which have historically been significant contributors to Indonesia's GDP. With the rise of technology and digitalization, emerging sectors such as e-commerce, fintech, and digital services are gaining momentum, reflecting the country's growing connectivity and innovation landscape. Additionally, Indonesia's vast archipelago and rich cultural heritage foster opportunities in hospitality, entertainment, and creative industries.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 29.0 21.8 49.3
Value Added (in % of GDP) 12.4 41.4 41.8
Value Added (Annual % Change) 2.3 4.1 6.5

Source: World Bank, Latest data available.

 

Find more information about your business sector on our service Market Reports.

Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.

Score:
66,9/100
World Rank:
56
Regional Rank:
10

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
5.95/10
World Rank:
58/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
President: Joko Widodo (since 20 October 2014) - PDI-P
Vice President: Ma'ruf Amin (since 20 October 2019)
Next Election Dates
Presidential: 2029
House of Representatives: 14 February 2024
Current Political Context
The government led by President Joko Widodo, who was re-elected for a second five-year term in May 2019, focused on structural reform and improving governance. It began a thorough overhaul of the energy subsidy programme, which funds infrastructure renovation and provides aid to the agricultural sector. With a focus on domestic issues during his second term, the president reaffirmed the reform agenda in 2020, particularly regarding labour, healthcare and infrastructure, in order to lure foreign investments and bolster growth. Despite growing public concern about pressures on civil liberties and the government’s pandemic difficulties, Widodo remained incredibly popular with Indonesian voters. Nevertheless, the Indonesian constitution does not allow the President to run for a third term; hence the Indonesian Democratic Party of Struggle (PDI-P) placed its expectations on Ganjar Pranowo, a former governor of Central Java, for the upcoming presidential election. Other candidates included NasDem outgoing Jakarta Governor Anies Baswedan, who was nominated leader of the Coalition of Change, and the defence minister and former special forces commander Prabowo Subianto, who lead the Advanced Indonesia Coalition.
Indonesian Defence Minister Prabowo Subianto has claimed triumph in the presidential election following unofficial vote tallies indicating a substantial lead over his opponents. The 72-year-old ex-special forces commander, who previously ran for president twice without success, reportedly secured approximately 58% of the votes, according to four pollsters conducting "quick count" analyses across sampling stations nationwide. Anies Baswedan and Ganjar Pranowo lagged behind with roughly 25% and 17%, respectively.
Main Political Parties
Single parties have little chance of garnering power alone. Thus, parties often work together to form coalition governments. Primary representation in parliament consists of both nationalist secular parties and moderate and Islamic-oriented groups. The major parties are:
Governing Coalition
- Indonesian Democratic Party of Struggle (PDI-P): centre-left, follows Pancasila’ideology based on the five founding principles of the Constitution; a split-away group from the PD
- Party of Functional Groups (Golkar): follows conservative liberalism, advocates democratic and liberal values
- National Awakening Party (PKB): Islamist, Pancasila ideology, nationalism
- United Development Party (PPP): Islamic democracy, nationalist Islamism, Pancasila ideology
Opposition:
- National Mandate Party (PAN): Islamic democracy, Pancasila ideology
- Democratic Party (PD): centrist, Pancasila ideology
- Prosperous Justice Party (PKS): Islamist, conservative
- Great Indonesia Movement Party (Gerindra): conservatism, nationalism, populism.
Type of State
Indonesia is a unitary republic made up of 35 provinces, 1 autonomous province, 1 special region, and 1 national capital district, based on parliamentary democracy with a Presidential form of government.
Executive Power
The President is both the head of the State and the head of the Government. The President enjoys the executive power and appoints the cabinet. Both the President and the Vice-President are elected through direct universal suffrage for five-year terms. The President is the commander-in-chief of the armed forces and responsible for domestic governance and policy-making and foreign affairs.
Legislative Power
The legislature in Indonesia is bicameral. The highest representative body at the national level is the parliament of the country, the People's Consultative Assembly (MPR). It consists of the DPR (House of People’s Representatives - lower house) with 575 members elected directly to serve five-year terms, and the DPD (House of Regional Representatives - upper house) with 136 seats, each province electing 4 members on a non-party basis. The President cannot dissolve the parliament but he has the power to veto bills. In turn, a super-majority of legislators may act to override the veto. The people of Indonesia have limited political rights.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
113/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Partly Free
Political Freedom:
2/7
Civil Liberties:
4/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the government of Indonesia, please consult the country's dedicated section in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: February 2024