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Indonesia and Its Future

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Indonesia and its Future
Indonesia, the world’s fourth-most populous country after China, India and the US is the largest economy in Southeast Asia. Although there had been a little concern over economy slowdown, the country has grown rapidly in past years. According to the Economist, “gross national income per head doubled during the decade to 2012, to $4,730 and the proportion of the population living in poverty fell by half, from 24% in 1999 to 12% in 2012”.
Indonesia recently had the 3rd presidential election last July. The new president will set a future path of Indonesia and hence, not only the people in the nation, the world has paid attention to the result. Joko Widodo, the winner of Indonesia's presidential election is expected to take office in October and a question Indonesia’s economy faces with the new government is that whether its economy will remain on the rise or face downturn.

I. Opportunities
Many investors and global corporations believe that there are growing opportunities in Indonesia. Especially consumer-focused companies like Ikea and automakers are looking at the bright side - young generation, growing middle class, and increasing demand - putting great investment into Indonesia. Indonesia is known to have its half the population aged below 30; the median age being 29. The number is definitely a striking when compared to aging societies like China and the West. Also, the number of middle class is expected to almost double to 141 million while 90 million Indonesians are believed to join the “consuming class” by 2030. Also the fact like only about 10 percent of Indonesians have a car shows that there will be significantly increasing demand in the domestic market in the future. Moreover, consumption of almost everything from sugar to coffee to palm oil has been climbing which is another sign to prove increasing demands in domestic market.

II. Challenges
However, significant challenges also remain. Whilst the country's gross domestic product has surged 80% during the administration of ex-president, the infrastructure needed for the economy to function, especially road networks, has not been improved to match the pace of growth. For example, Toyota has moved its production facilities from Thailand to Indonesia partly because the latter is better located for exporting to the Middle East and Africa, but serious concern is lying in traffic jams. The main Toyota plant is about 70 kilometers from the port, but the drive takes about two and half hours on average, adding to the cost of transport. The number of cars in the capital is increasing by about 10% every year. But overall road capacity has remained near unchanged. According to Toyota Motor Manufacturing Indonesia, "if roads aren't improved, the drive could take 9 hours each way by 2020” referring to the possibility that continued inadequate infrastructure could cause serious operational disruptions. Also, Indonesia’s interest in protectionism is making many investors nervous because there is a chance that it will resist the economy from further opening to foreign investment and competition which might cut off the economy from the global supply chain and product development and leave its industries uncompetitive. Moreover other challenges such as increasing minimum wages, government corruption, and inadequate education system must be taken into consideration.

III. Its future
At this state where such opportunities and threats co-exist, it must be true that the country needs good governance and sound decision-making more than ever. How the new president-elect addresses above challenges will go a long way towards determining the future fortunes of Indonesia.
There are contrasting views in regards to Mr. Widodo’s new entry. Some investors are excited to see him because of his background as a small businessman and record of reforms as governor of Jakarta and of his home town in central Java. They believe his past experiences will guide him to better design future of Indonesia.
However others are concerned with his ability to carry his promises due to lack of majority support in the national legislature. They think that he might face a struggle to win backing from the country’s fragmented political parties which will definitely become a challenge for him.

IV. My Opinion
We all know what the problems are for Indonesia. Having its opportunities and threats determined, it is certainly clear what the Indonesian government should do to stoke the growth of the economy. However, what I am concerned the most is Mr. Widodo‘s strong interest in protectionism as it can definitely hurt its competitiveness by blocking competition. Mr. Widodo has voiced protectionist views several times, stating that Indonesia undoubtedly needs to maintain certain barriers to foreign businesses seeking to enter the market and he promised to give preference to domestic companies in government approval and authorization of business.
Indonesia has substantial amounts of natural resources, which comprises more than half of the nation’s export. It is aiming to reach high-income status by 2025, but dependency on natural resources will prevent it from the goal since the sector has the least contribution to employment of the country and so does to increasing middle class. Thus, I do understand Mr. Widodo’s concern over dependency on natural resources and also agree with that creating a strong manufacturing sector is a must for Indonesia. However learning from the past, such strong protectionism based economic policy did no good to Latin America in 1950’s. Thus, Indonesia must not sorely rely on protectionism but address many other issues at the same time such as cutting costly fuel subsidies, investing more into infrastructure, addressing corruption, and so on. Moreover, Mr. Widodo must understand what brought down the country’s manufacturing sector - a combination of low labor productivity, inefficient investments, and strict labor regulations. Thus in order to further grow, the new government must seek significant improvements in many different aspects where can give incentives both to local and foreign investors, and eventually achieve overall reform.

REFERENCES

Chatterjee, Neil, and Novrida Manurung. "Indonesia Touts Population to Entice Facebook Investment." Bloomberg.com. Bloomberg, 17 Apr. 2014. Web. 29 Sept. 2014. <http://www.bloomberg.com/news/2014-04-17/indonesia-touts-population-to-entice-facebook-investment.html>.

Chatterjee, Neil, and Rieka Rahadiana. "Made-in-Indonesia Fixation Poses Risks to Widodo Plans: Economy." Business News. Washington Post, 26 Aug. 2014. Web. 29 Sept. 2014. <http://washpost.bloomberg.com/Story?docId=1376-NAOYWV6KLVR501-1HDJSP878GFRAGBPK55CO3SR54>.

"Indonesia: An Inevitable Choice of Economic Transformation." Waltham Economy of Asia Review. 8 Apr. 2014. Web. 29 Sept. 2014. <http://brandeisear.wordpress.com/2014/04/08/ indonesia-an-inevitable-choice-of-economic-transformation/>. "Indonesia Bourse Hits Record High - FT.com." Financial Times. Web. 29 Sept. 2014. <http://www.ft.com/cms/s/0/3123c120-3734-11e4-8472-00144feabdc0.html>.

"Made-in-Indonesia Fixation Poses Risks to Widodo Economic Revamp." The Malay Mail Online. 26 Aug. 2014. Web. 29 Sept. 2014. <http://www.themalaymailonline.com/money/ article/made-in-indonesia-fixation-poses-risks-to-widodo-economic-revamp>. "Muted Music." The Economist. The Economist Newspaper, 3 May 2014. Web. 29 Sept. 2014. < http://www.economist.com/news/finance-and-economics/21601550-poor-are-benefiting-relatively-little-indonesias-growth-muted-music>.

Sidner, Sara. "Young and Rich in Indonesia." CNN. Cable News Network, 23 Nov. 2010. Web. 29 Sept. 2014. <http://edition.cnn.com/2010/BUSINESS/11/23/indonesia.young.rich/>.

Smith, Susan. "Indonesia Ripe for Hungry, Smaller Canadian Business." The Globe and Mail. 23 Sept. 2014. Web. 29 Sept. 2014. < http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/indonesia-ripe-for-smaller-canadian-business/article20720057/>.

"Toyota Expands Production in Indonesia, Soon to Be Region's Largest Auto Market." Nikkei Business Online. 28 July 2014. Web. 29 Sept. 2014. <http://business.nikkeibp.co.jp/article/ eng/20140728/269342/?ST=print_e>. Watanabe, Sadachika. "Poor Infrastructure, Protectionism Threaten Indonesia's Growth- Nikkei Asian Review." Nikkei Asian Review, 15 July 2014. Web. 29 Sept. 2014. <http://asia.nikkei.com/print/article/42428>.

"Young Indonesians Woo Investors." Bangkok Post. 17 Apr. 2014. Web. 29 Sept. 2014. <http://www.bangkokpost.com/print/405366/>.

PRINT http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/indonesia-ripe-for-smaller-canadian-business/article20720057/ http://www.economist.com/news/finance-and-economics/21601550-poor-are-benefiting-relatively-little-indonesias-growth-muted-music

http://www.bloomberg.com/news/2014-04-17/indonesia-touts-population-to-entice-facebook-investment.html

http://www.globaltimes.cn/content/742392.shtml

http://www.valuewalk.com/2014/09/indonesia-trade-restrictions/

--------------------------------------------
[ 1 ]. Smith, Susan. "Indonesia Ripe for Hungry, Smaller Canadian Business." The Globe and Mail. 23 Sept. 2014. Web. 29 Sept. 2014.
[ 2 ]. "Muted Music." The Economist. The Economist Newspaper, 3 May 2014. Web. 29 Sept. 2014.
[ 3 ]. Sidner, Sara. "Young and Rich in Indonesia." CNN. Cable News Network, 23 Nov. 2010. Web. 29 Sept. 2014.
[ 4 ]. "Young Indonesians Woo Investors." Bangkok Post. 17 Apr. 2014. Web. 29 Sept. 2014.
[ 5 ]. Chatterjee, Neil, and Novrida Manurung. "Indonesia Touts Population to Entice Facebook Investment." Bloomberg.com. Bloomberg, 17 Apr. 2014. Web. 29 Sept. 2014.
[ 6 ]. Chatterjee, Neil, and Rieka Rahadiana. "Made-in-Indonesia Fixation Poses Risks to Widodo Plans: Economy." Business News. Washington Post, 26 Aug. 2014. Web. 29 Sept. 2014.
[ 7 ]. Watanabe, Sadachika. "Poor Infrastructure, Protectionism Threaten Indonesia's Growth- Nikkei Asian Review." Poor Infrastructure, Protectionism Threaten Indonesia's Growth- Nikkei Asian Review. Nikkei Asian Review, 15 July 2014. Web. 29 Sept. 2014.
[ 8 ]. "Toyota Expands Production in Indonesia, Soon to Be Region's Largest Auto Market." Nikkei Business Online. 28 July 2014. Web. 29 Sept. 2014.
[ 9 ]. Ibid.
[ 10 ]. Ibid.

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