Indonesia: South East Asia’s Biggest Economy

indonesia coal

Indonesia is on its way to add “I” to the term BRIC which refers to emerging economies Brazil, Russia, India and China that experience signficant growth (should we now say BRIIC or BRICI?). The country is now the biggest economy in the South East Asian region. Trade Minister Mari Pangestu was recently interviewed by FT and explained that manufactured goods, coal and tin as well as  growing middle income are the fuel behind Indonesia’s economic rise. See the full-video here.

Here is the summary.

Indonesia is the biggest thermal coal exporter in the world accounting for 30% of the global thermal exports, whilst Australia is the second largest exporter. After the nuclear accident in Japan, many countries have delayed their plans to expland nuclear power sites. In addition to fuel-based energy consumption, coal-based energy consumption has been showing a significant increase. The challenge is how to increase or maintain the 30% share. There’s relatively small room to improve this already big share although there is high demand for coal and this is expected to continue in the longer-term. The lack of infrastructure and high uncertainty including regarding taxation put further challenges for Indonesia. Indonesia is also dealing with illegal mining issues. Minister Pangestu explained that the government has put attention to support the coal industry by providing sufficient incentives to continue exploration and reduce uncertainty. Indonesia also regulates the market by issuing the so called ‘domestic market obligation’ which requires coal producers to sell a certain percentage of their production into the domestic market.

Indonesia is also the biggest exporter of tin contributing to 37% of the world’s total tin exports. Yet, challenges remain including the sustainability of this export growth and the lack of processing manufacturing development.

Unfortunately whilst Indonesia is said to have lots of tin and coal, being self-sufficient in rice is a struggle. However, Minister Pangestu argued that Indonesia is close to become self-sufficient in rice. Indonesia only imports rice during the non-harvesting period. These imports typically account of no more than 3 to 4% of total consumption.

The growth of China is considered to be opportunities for Indonesia. Minister Pangestu explained that given European countries and the US’ attempts to diversify their investments, Indonesia has benefited from reallocation of investments from China to Indonesia especially in garments, footwear and toys.

Growing middle income in Indonesia has contributed to the growth of the retail sector. Indonesia’s GDP per capita has now reached $3000 and there are about 30 million of people belong to the middle income group.

Minister Pangestu ended the interview by saying that infrastructure bottleneck remains Indonesia’s biggest constraint to grow. The good news is she said that investments in infrastructure from Korea and India and some other countries are flowing in.

This article is prepared by Risti Permani.

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3 Comments

Filed under Economic Integration, Energy, Food and agriculture, Indonesia, Infrastructure, Trade

3 responses to “Indonesia: South East Asia’s Biggest Economy

  1. Pingback: Port of Jakarta Fresh Food Import Closure | GoLive Indonesia

  2. scott

    great article u helped me on my position paper a whole lot!!!!

  3. Exactly what seriously influenced u to create “Indonesia:
    South East Asias Biggest Economy | GoLive Indonesia”? I
    actuallyabsolutely appreciated it! I appreciate it -Fred

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