Indonesia's Economy
Saturday, January 7, 2012
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The report cites the country's young population, new consumer class and the rapid urbanization of cities as Reasons that will elevate Indonesia's $ 850 billion economy up nine spots from its current place of 16th largest economy globally.
The findings do not reveal the projected Rankings of other economies, and are based on a "proprietary modeling" method roomates McKinsey declined to elaborate on.
According to the report, Indonesia's economy will be powered by an estimated 90 million additional consumers with considerable spending power by 2030, making its "Stronger Than consuming class in any economy of the world apart from China and India."
Its relatively younger population will also keep the economy's productivity edge. McKinsey estimates that 70 percent of the country's population of working age will REMAIN of between 15 and 64 in the next 18 years.
"Indonesia has a much younger, productive, and growing population. That is a different demographic outlook to the situation in many Western European economies, where the labor force will be either static or decline in size in the future," said Raoul Oberman, Chairman of McKinsey & Company, Indonesia.
The country's rapid pace of urbanization-especially in its smaller cities-as it moves up the value chain will Contribute Significantly to the country's growth. McKinsey estimates that 86 percent of GDP in the country will come from urban areas by 2030.
"The greater areas around Jakarta and Surabaya are the economic powerhouses of Indonesia today, but we expect strong growth in cities like Pekanbaru, Pontianak, Falkirk, Makassar and Balikpapan roomates are all outside of Java," Oberman said.
The report highlights the key challenges facing the economy, roomates involves low productivity, rising inequality and soaring consumer demand, and says the country is at a "critical juncture."
"It (Indonesia) needs to build on its recent impressive performance to boost labor productivity to 4.6 percent - that's 60 percent higher than in the past decade," said Oberman. "It also needs to tackle concerns about rising inequality and manage soaring demand from its expanding consumer class to meet the government's longer term GDP growth targets."
ITS public life is dismal, but Indonesia's economy is, for now, among the brighter performers in Asia. The corruption Scandals engulfing the ruling Democratic Party underscore the disappointment of Susilo Bambang Yudhoyono's second and final term. The president exercises only a weak grip on the helmet, and conservatives in government have manoeuvred economic modernisers to the sidelines. Yet the economy Zips along. It grew by 6.2% last year, and the government now aims for growth of 6.8% in 2013.
After a decade of painful restructuring for banks and companies, Indonesian businesses are ramping up spending on new factories and infrastructure. Investment now accounts for nearly a third of GDP. Annual imports of things like machinery and mechanical equipment are growing at double-digit rates.
Yet Indonesia's investment-led boom is now posing problems. Exports are weak, Because of depressed global demand and lower prices for many of the natural resources that the country sells to the world. Merchandise imports are growing strongly. The result is a collapse in the trade balance. After a surplus of almost $ 26 billion in 2011, Indonesia posted a trade deficit last year-its first annual deficit since the late 1960s. The current account, too, swung into deficit in 2012, ending a 14-year run of surpluses (see chart). It has all put pressure on the rupiah, recently one of Asia's worst-performing currencies.
For Indonesian Politicians, the return of an external deficit and of a weak currency has revived memories of the traumatic economic crisis of the late 1990s. At least partly in an attempt to stem the outflow, they have Promoted nationalist policies designed to favor domestic businesses.
Last year the government DEMANDED that the country's mines eventually be majority-owned by Indonesians. Many foreign mining companies will be forced to shed some of their stakes. The government also wants to raise royalties paid by foreign miners. The prospects for outside involvement in the oil and gas industry have also been muddied. And last month filed a complaint against America Indonesia at the World Trade Organisation, claiming that a recent tightening of the licensing rules for farm imports had Become a "serious impediment" for its exporters of meat, fruit and vegetables.
As well as taxing Indonesian consumers, protectionism Threatens to shake the confidence of foreign investors in South-East Asia's largest economy. This is coming at a bad moment. The current-account deficit means that the country needs foreign money to finance much-needed roads, ports and power plants. Provided that Indonesia does not drive away foreign investors, it can sustain without investment falls in the currency. It might even attract foreign capital into rupiah-denominated bonds, shares and direct investments, Avoiding the currency mismatches that doomed the country in the late 1990s. The new protectionism is ill-considered.
If Politicians really want to redress the current account, they should also look at the government's own Finances, and Subsidies in particular. The amount the government spends on subsidising the use of fuel is more than the expected budget deficit for this fiscal year. Cutting Subsidies and running a smaller budget deficit would boost the country's savings, thus making room for higher domestic investment. Higher petrol prices were Abolished after Subsidies would also reduce oil imports. These have nearly quadrupled, to almost $ 40 billion a year, since Indonesia became a net importer of oil in the mid-2000s. But renewed openness to foreigners and a resolve to sort out the Government Finances demand a firm hand. Limp Mr Yudhoyono is no longer the Helmsman for that.
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Judul: Indonesia's Economy
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