Indonesia - Overview
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Despite the good results from the main economic indicators, structural reforms are needed. The drop in the value of the local currency has negatively affected public finances, although the level of debt reamins stable. The government has decided to maintain a policy of fiscal caution in order to prevent the deficit from deepening. Despite the planned election, the budget for 2014 remains conservative and puts more emphasis on economic stability than on stimulating growth. Inflation should reach 5.5%, expenditure growth should be limited to 6.7% and cuts have been planned in the area of subsidy programmes nad social welfare. The 2014 budget, which was revised in February, aims to contain the current account deficit to no more than 2.5% of the GDP through restrictive fiscal and monetary posicy. The fight against corruption, which increases production costs and acts as an impediment to FDI, as well as the protection of the mining sector are among the priorities. The protection of the environment is a major challenge in Indonesia.
Although it has been decreasing since 2008, the unemployment rate remains high (6%) and many people work in vulnerable conditions. A large part of the population lives below the poverty line and the gap between the very rich and the very poor does not seem to be diminishing.
Industries contribute to around half of the GDP. The industrial sector includes manufacturing of textiles, cement, chemical fertilizers, electronic products, rubber tires, clothing and shoes (most of these are for the American market). Wood processing is also a major activity.
The tertiary sector (financial institutions, transportation and communications) contributes to around a third of the GDP. The banking sector is well-developed. The Islamic bank Syaria has expanded rapidly during these recent years. Tourism is a major source of revenue, however, the sector has suffered from terrorist threats and natural catastrophes.
Foreign trade overview
The country's positive trade balance diminished in 2009 under the effect of the global recession and the fall of the price in raw materials. In 2012, Indonesia registered a trade deficit for the very first time and this trend has now lasted for three years. Despite the trade surplus obtained during the last quarter of 2013, the overall trade balance for 2013 was negative, with a deficit of more than 4 billion USD. The improvement of the trade balance at the end of the year was largely connected to a rise in exports before the expected coming into force of the export ban on non-processed minerals. The negative trend should continue in 2014.
The three main export partners of Indonesia are Japan, the United States and Southeast Asia. The commodities that are mainly exported are mineral fuels and hydrocarbons, electrical equipment, animal and vegetable fats & oils, nuclear reactors & boilers, and rubber. Its main import partners are Southeast Asia, Japan and China. The commodities that are mainly imported are mineral fuels & oils, nuclear reactors & boilers, iron & steel, electric & electronic equipment, and organic chemicals.
Strengthening the political and economic stability has removed some investment risk and improved the overall atmosphere on the market. However, some obstacles remain, such as the rising cost of credit, poor investment climate, excessive and the unpredictable nature of regulation, poor infrastructure, the control of the risk of terrorism and a high level of corruption. The entity responsible for investment licenses is the Investment Coordinator Board (BKPM).