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Indonesia’s Economy Prospers Despite Being Dubbed ‘Fragile’

Indonesia’s economy
Indonesia’s economy was a part of the “fragile five” emerging economies according to U.S. investment bank Morgan Stanley in 2013. Experts considered it to be the most vulnerable to any jumps in U.S. interest rates. However, Indonesia has remained surprisingly stable a decade later as U.S. interest rates have risen rapidly and a global energy, food and climate crisis are happening. With a booming economy and a stable political arena, Indonesia’s currency is currently performing the best in Asia. In addition, the country’s stock market is hitting record highs. As other countries in the region struggle to keep afloat, Indonesia prospers due to unique circumstances.

Indonesia’s Economy in 2022

The southeast Asian country, with a population of around 276 million, is extremely resource-rich. It has undergone impressive economic growth ever since the 1990s Asian financial crisis. According to the World Bank, Indonesia is not just the largest economy in the South-East Asian region but is also the 10th largest economy globally in terms of purchasing power parity. Since 1999, Indonesia has cut poverty rates by more than half to about 10% prior to COVID-19.

The COVID-19 pandemic caused a slight halt in the progress of Indonesia’s economy. For example, poverty rates rose from 9.2% in September 2019 to 9.7% in September 2021. Estimates indicated that the GDP growth of the country was 5.1% in 2022 as Indonesia recovers from COVID-19’s impact. One of the most significant impacts the pandemic had was on children’s learning capabilities. The pandemic resulted in the closing down of schools and could result in the stunting rate of the country increasing.

However, as of September 2022, Indonesia sees unprecedented growth and stability. The country has one of the lowest inflation rates in the world at 4.7% in August 2022, and the country’s GDP has expanded to 5.4%, much more than the amount that was estimated. With exports also increasing to 30.2%, the highest they have been on record, Indonesia’s economy stands in stark contrast to other countries in the region that have struggled with COVID-19’s impact.

Reasons for Indonesia’s Prosperity

One can credit the success of Indonesia’s economy to multiple factors:

  • Political Stability: A large part of Indonesia’s success lies with President Joko Widodo. He has remained popular with the population as well as investors for eight years. A poll that Indikator Politik conducted this month showed his approval rating to be 62.6%, a 10% drop from May 2022, but still significant to show his immense support in the country. With Widodo also hosting the G20 summit in Bali in November 2022, his popularity has kept investors interested in the country’s future.
  • Low Inflation Rates: In comparison to many neighboring countries, Indonesia’s inflation rates have remained consistently low. Combined with interest rates raised for the first time in three years to 3.75%, there have not been major shocks to the system for Indonesians. Although exports are quite high, other factors have also had a significant impact. For example, Widodo’s “omnibus law” aimed at job creation by reducing employment regulations.
  • Indonesia’s Nickel Reserves: With one of the biggest reserves of nickel in the world, Indonesia stands at an advantage, particularly in the electric vehicle industry. The country will likely provide a significant chunk of the nickel supply that the global electric vehicles industry requires going forward. This will also further help the exports of the country.

Concerns for the Future

While Indonesia’s economy has remained stable, there are some concerns for the coming years. While the economy’s stability is not causing concern, the political factors are. Widodo’s lack of a clear candidate combined with the recent drop in his popularity due to cuts in fuel subsidies has raised concerns. Moreover, the country’s main commodity exports like coal are still a huge driving force behind the economy. Additionally, future commodity prices should drop. Many also predict an increase in inflation by October.

Despite such concerns, Indonesia has shown to be invulnerable to shocks like the COVID-19 pandemic and continues to outperform other countries in the region.

– Umaima Munir
Photo: Unsplash