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As Indonesia heads into a presidential election next April, the
world's fourth most populous country is attempting to attract
foreign investment while increasing control of key industries.
This tricky balancing act typical of resource-rich countries is
in the hands of President Joko Widodo, who took office in 2014 and
is running for re-election. An affable populist generally seen as
pro-business, he is the country's first leader not chosen from its
military and socioeconomic elite.
Until recently, he was considered a strong favorite to win, but
sluggish economic growth and a fall in the value of the country's
currency, the rupiah, have propped up the chances of his rival,
retired general Prabowo Subianto.
This month, Widodo's government announced a new economic
stimulus package aimed at boosting the rupiah and fueling growth in
the $3 trillion economy, the biggest in Southeast Asia. The
measures include a tax cut on luxury properties and opening
domestic sectors including steel and chemicals to more foreign
investment.
To shore up support, Widodo has also picked Islamic cleric
Ma'ruf Amin as his running mate. Indonesia is the world's most
populous Muslim-majority country.
One reason for Indonesia's obscurity relative to its size is
sheer sprawl. It's made up of thousands of islands, mostly
volcanic, spanning an eighth of the earth's circumference, and
hundreds of different ethnic groups, many with their own
languages.
The expanse of the archipelago means that its problems can be
broad, too, from forest fires and Islamic extremists to disputes
with foreign investors and falling commodity prices in faraway
markets.
Like many countries that were colonized, in this case by the
Dutch, Indonesia still has an economy dominated by large farm
plantations, factory sites, and mines. Seven of its top 10 exports
are industrial commodities.
Amid the millions of domestic businesses transacting with each
other are big resource economies that are world leaders in key
industrial and consumer commodities like copper, petroleum, coal,
tin, rubber, coffee and palm oil.
In the high mountains of one island, Papua New Guinea, for
example, is one of the world's most prolific mines, Grasberg which
has been controlled by the US' Freeport-McMoran since the 1960s.
For years, Indonesia's government wrestled with Freeport over the
terms involved in unearthing copious amounts of copper and gold.
The stakes are big: Grasberg employs around 20,000 people and made
Indonesia the world's third largest copper exporter in 2018.
Copper exports, first 8 months, 2018
Chile $12.7 billion
Peru $8.1 billion
Indonesia $3.1 billion
Australia $3 billion
Canada $1.8 billion
The mine exemplifies the tension faced by many mineral-rich
countries. They need the expertise of outside companies but feel
they deserve a larger share of the profits. Last year, the
government forced Freeport to lower its stake to 49% from over 90%.
Freeport was also required to invest in taking an open-air mine
underground and building a smelter. The dispute last year caused
the government to revoke Freeport's mining permit, triggering a dip
in copper exports in 2017.
Indonesia copper exports, first 8 months
2010: 1.7 billion kg
2011: 1.1 billion kg
2012: 721.3 million kg
2013: 779 million kg
2014: 163.2 million kg
2015: 1.1 billion kg
2016: 1.2 billion kg
2017: 627.7 million kg
2018: 1.1 billion kg
Copper used to make pipes and wiring, has become essential to
Indonesia's economic health. In particular, it's cashed in on
China's output of roads, homes, bridges, computers and cars.
Exports to China have boomed in the last few years, driven by
Beijing's hunger for raw materials.
Indonesia exports to China, first 8 months
2010: $9 billion
2011: $13.7 billion
2012: $13.8 billion
2013: $14.2 billion
2014: $11.9 billion
2015: $10 billion
2016: $9.5 billion
2017: $13.6 billion
2018: $18.1 billion
Nine of Indonesia's top ten export destinations are in Asia,
while relations with the European Union have frayed over the
country's cultivation of palm to make oil. The EU has moved to ban
palm oil imports.
Indonesia's top export destinations, first 8 months,
2018
China $18.1 billion (+33%)
Japan $13.3 billion (+19%)
US $12.3 billion (+5%)
India $8.8 billion (-3%)
Singapore $8.6 billion (+6.4%)
Malaysia $6.2 billion (+15%)
South Korea $6.2 billion (+15%)
Thailand $4.7 billion (+9%)
Philippines $4.6 billion (+13%)
Taiwan $3.1 billion (+15%)
Indonesia has become dependent on China for its supply of
consumer goods like shirts, shoes and electronics. And most of its
other suppliers are clustered in Asia. The exception is the US,
which ships it, among other things, machinery, soybeans, oil,
cotton, and wood.
Indonesia's top 10 sources of imports, first 8 months,
2018
China $28.7 billion
Singapore $14.2 billion
Japan $11.9 billion
Thailand $7.2 billion
US $6.6 billion
South Korea $6 billion
Malaysia $5.8 billion
Australia $3.8 billion
India $3.3 billion
Saudi Arabia $3.1 billion
Even as it negotiated the tough deal with Freeport, Indonesia's
welcoming of foreign investment in other ways has not gone
unnoticed. In 2018, the Heritage Foundation, an influential
Washington think tank, increased Indonesia's "economic freedom
score" by 2.3 points, making it the 69th freest economy
in the world.
Heritage credited Indonesia with "solid improvements in business
freedom, monetary freedom and judicial effectiveness" which "more
than offset lower scores for government integrity and fiscal
health."
Posted 27 November 2018 by John Miller, Guest Blogger
The Trade Numerologist is IHS Markit's unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit's Global Trade Atlas database, the world's most complete and accurate set of trade numbers.
What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.
