Indonesia Indonesian Economy News and Updates

[Indos]

Latest CEBR projection (Late December 2021)

Leading economic forecasts and analysis | Cebr

Cebr is one of the UK’s leading economics consultancies. We provide research to support thought leadership and maintain a speciality in the analysis of economy.

cebr.com

Nominal GDP

Indonesia

Indonesia As of 2021, Indonesia is estimated to have a PPP adjusted GDP per capita of $12,967 and is classified as a lower middle-income country, having been downgraded from its upper-middle income status in July 2021 due to the adverse effects of the pandemic, with GDP contracting by 2.1% in 2020.

Nonetheless, the economy has experienced a bounce back in 2021, with an estimated growth rate of 3.2% in 2021. Consequently, output stands 1.1% above 2019 levels. The economy has enjoyed a strong rate of GDP growth since overcoming the Asian financial crisis in the late 1990’s, despite a modest rate of population growth, which averaged just 1.0% per year over the past five years. Indonesia’s economy has been largely propelled by its strong manufacturing and agriculture sectors.

The former contributed towards 19.8% of Indonesia’s 2020 GDP and stands as the tenth largest manufacturing sector in the world, ahead the likes of the UK and Russia. Moreover, it employs approximately a fifth of Indonesia’s active labour force.

The country’s burgeoning manufacturing sector, which consists of mainly textiles & garments, food & beverage, electronics, chemicals, and automotive parts, along with its competent workforce, has attracted much foreign investment, with foreign direct investment in manufacturing in Indonesia amounting to an estimated US$10.4bn in 2018.

The world’s largest island nation also has a robust agriculture sector, with a strong global market share in palm oil especially, producing up to half of the world’s global palm oil supply. Indonesia follows a 20-year development plan, which spans from 2005 to 2025 and is segmented into 5-year medium-term development plans called the RPJMN (Rencana Pembangunan Jangka Menengah Nasional), each with different development priorities. The current medium-term development plan from 2020-25 marks the final phase of this plan and aims to further strengthen Indonesia’s economy by improving the country’s human capital and competitiveness in the global market.

Indonesia has also been lauded for cutting its extreme poverty rate by more than half over the 2000’s, to just under a tenth of the population in 2020. Nonetheless, the pandemic has curtailed progress in poverty reduction, with the poverty rate rising to 10.4% in March 2021, up from the recordlow of 9.2% in September 2019.

Compared to the countries in the world hit most severely by COVID-19, Indonesia has somewhat managed to stifle the effect of the pandemic on its residents, with an estimated 52.1 deaths per 100,000 residents recorded relating to COVID-19 as of December 2021. Indonesia's vaccination campaign has also been relatively successful by global standards, with 53.7% of residents having been administered at least one dose. Moreover, 37.8% are fully protected.

Underpinning the robust GDP growth in 2021 has been a resilient labour market. In 2021, the unemployment rate fell by 0.5 percentage points to 6.6%. While government debt as a share of GDP remains at a moderate level compared to some economies in the region, it did reach 41.4% in 2021, up from 36.6% in 2020, partly due to stimulus policies as part of the pandemic response, which as of November 2020, amounted to IDR744.28 trillion. Between 2021 and 2036, Indonesia is forecast to move from 16th place to 8th place in the World Economic League Table, an 8-place improvement in the rankings.

https://cebr.com/wp-content/uploads/2021/12/WELT-2022.pdf

 

[Nilgiri]

Latest CEBR projection (Late December 2021)

Leading economic forecasts and analysis | Cebr

Cebr is one of the UK’s leading economics consultancies. We provide research to support thought leadership and maintain a speciality in the analysis of economy.

cebr.com

Nominal GDP

View attachment 37760
Indonesia

Indonesia As of 2021, Indonesia is estimated to have a PPP adjusted GDP per capita of $12,967 and is classified as a lower middle-income country, having been downgraded from its upper-middle income status in July 2021 due to the adverse effects of the pandemic, with GDP contracting by 2.1% in 2020.

Nonetheless, the economy has experienced a bounce back in 2021, with an estimated growth rate of 3.2% in 2021. Consequently, output stands 1.1% above 2019 levels. The economy has enjoyed a strong rate of GDP growth since overcoming the Asian financial crisis in the late 1990’s, despite a modest rate of population growth, which averaged just 1.0% per year over the past five years. Indonesia’s economy has been largely propelled by its strong manufacturing and agriculture sectors.

The former contributed towards 19.8% of Indonesia’s 2020 GDP and stands as the tenth largest manufacturing sector in the world, ahead the likes of the UK and Russia. Moreover, it employs approximately a fifth of Indonesia’s active labour force.

The country’s burgeoning manufacturing sector, which consists of mainly textiles & garments, food & beverage, electronics, chemicals, and automotive parts, along with its competent workforce, has attracted much foreign investment, with foreign direct investment in manufacturing in Indonesia amounting to an estimated US$10.4bn in 2018.

The world’s largest island nation also has a robust agriculture sector, with a strong global market share in palm oil especially, producing up to half of the world’s global palm oil supply. Indonesia follows a 20-year development plan, which spans from 2005 to 2025 and is segmented into 5-year medium-term development plans called the RPJMN (Rencana Pembangunan Jangka Menengah Nasional), each with different development priorities. The current medium-term development plan from 2020-25 marks the final phase of this plan and aims to further strengthen Indonesia’s economy by improving the country’s human capital and competitiveness in the global market.

Indonesia has also been lauded for cutting its extreme poverty rate by more than half over the 2000’s, to just under a tenth of the population in 2020. Nonetheless, the pandemic has curtailed progress in poverty reduction, with the poverty rate rising to 10.4% in March 2021, up from the recordlow of 9.2% in September 2019.

Compared to the countries in the world hit most severely by COVID-19, Indonesia has somewhat managed to stifle the effect of the pandemic on its residents, with an estimated 52.1 deaths per 100,000 residents recorded relating to COVID-19 as of December 2021. Indonesia's vaccination campaign has also been relatively successful by global standards, with 53.7% of residents having been administered at least one dose. Moreover, 37.8% are fully protected.

Underpinning the robust GDP growth in 2021 has been a resilient labour market. In 2021, the unemployment rate fell by 0.5 percentage points to 6.6%. While government debt as a share of GDP remains at a moderate level compared to some economies in the region, it did reach 41.4% in 2021, up from 36.6% in 2020, partly due to stimulus policies as part of the pandemic response, which as of November 2020, amounted to IDR744.28 trillion. Between 2021 and 2036, Indonesia is forecast to move from 16th place to 8th place in the World Economic League Table, an 8-place improvement in the rankings.

https://cebr.com/wp-content/uploads/2021/12/WELT-2022.pdf

The fundamentals are solid in Indonesia overall.

However it needs to increase amount it innovates. It cannot rely just on legacy sectors growing.
Intellectual property especially, Indonesia is not doing enough here, it has to invest more.

More broadly, these projection analysis are only so good as there are going to be some very big disruptions this decade compared to previous 2 (that they use as basis).

 

[HTurk]

The fundamentals are solid in Indonesia overall.

However it needs to increase amount it innovates. It cannot rely just on legacy sectors growing.
Intellectual property especially, Indonesia is not doing enough here, it has to invest more.

More broadly, these projection analysis are only so good as there are going to be some very big disruptions this decade compared to previous 2 (that they use as basis).

There are many issues that will be more urgent in the next years. You can already see that Indonesia is turning into a current account deficit country due to rising imports and consumption.

At the same time, investments in new machinery and technology is falling behind the overall dynamics in Indonesia.

Unfortunately, the Indonesians are repeating many of the mistakes that Turkey has done in the last two decades but people here are cherry picking news (so did many Turks back in the day).

 

[Nilgiri]

There are many issues that will be more urgent in the next years. You can already see that Indonesia is turning into a current account deficit country due to rising imports and consumption.

At the same time, investments in new machinery and technology is falling behind the overall dynamics in Indonesia.

Unfortunately, the Indonesians are repeating many of the mistakes that Turkey has done in the last two decades but people here are cherry picking news (so did many Turks back in the day).

Well from inside out they are fairly robust at this point.

Their capital account + savings is looking ok (relative to 275 million people developing country):

Forex of 150 billion or so...not too shabby
Their central bank bonds are rated investment grade.

FDI looks to reach 10 billion or more per year soon....and Indonesia is looking to do more investment reforms.
Market Cap at around 500 billion, sized well and looks stable.

Capital formation rate of about 33% or so of GDP
Total Savings at 350 billion USD or so.

They definitely need to investment into more tech sectors as possible and scale vertically in value added (both industry and services). i.e use capital account leverage to improve current account issues with time. Current account (problems and/or strengths) mostly depends around the capital account foundations IMO.

But these numbers were somewhat different in Turkey's apex in 2010....and increasingly it looks like certain details really mattered as to the nature of the bubble grown in certain sectors.

Indonesia more or less had its worst case bubble in rearview mirror (late 90s) and the recovery since has formed on bedrock of those lessons.

I agree its not productive to cherrypick in any country case

Turkey problems just get fleshed out more given the nature of the current economic situation combined with far higher Turkish membership in forum compared to other countries.

India also its more or less like this Indonesia economy thread too. We need probably 3 - 4 times the membership there to get more critics...otherwise it feels like I am just taking to myself when I do so lol.

Maybe Indonesians here can create more nuance and debate (i.e show other aspects +challenges too)....but it depends on the interest for it.

But the innovation thing is the largest overall reading I perceive as overall thing Jokowi Admin should focus on more from its end....and also Indonesian corporates. Indonesia overall is still quite structured on natural resources in lot of areas....transitioning to more kinds of industry and services will take time....but that will be overall the heading this decade.

They dont suffer extensive bad relations with any large country, thats good for them.

 

[Indos]

The fundamentals are solid in Indonesia overall.

However it needs to increase amount it innovates. It cannot rely just on legacy sectors growing.
Intellectual property especially, Indonesia is not doing enough here, it has to invest more.

More broadly, these projection analysis are only so good as there are going to be some very big disruptions this decade compared to previous 2 (that they use as basis).

Yup the fundamental is quite solid, alhamduliLLAH, and in term of debt, current government bond taken by foreign institution is now only 19 % (2021) so inshaAllah in the long term we will become like Japan in term of bond structure where domestic investor become the large majority holder of government bond and denominated in Rupiah instead of USD.

Indonesia is trying to develop renewable sector now, including solar cell factory (PT LEN Industry), geothermal power plant (PT Pertamina and BPPT is undergoing research), biofuel (Pertamina and university, ITB), battery supply chain industry from mining, refinery, into complete battery pack and EV cars and motorcycles (PT Battery Indonesia Holding and Korean consortium (lead by LG), CATL has already had MOU)

Service industry that I think we should develop more, just like India with its IT industries.

-----------------------------------------

Any way what is you opinion in high jump of Indonesia GDP from 2031 into 2036 ? The CEBR never tell the reason, maybe this analyst that they are going to sell. My opinion is that large gap is between number 15 into 14, while for 14 into 8, the nominal GDP between those countries are not much different.

 

[Indos]

This is not cherry picking

Three threats to growth in emerging markets

Tightening American monetary policy, slowing China and the Omicron variant

www.economist.com

 

[Indos]

Maybe Indonesians here can create more nuance and debate (i.e show other aspects +challenges too)....but it depends on the interest for it.

But the innovation thing is the largest overall reading I perceive as overall thing Jokowi Admin should focus on more from its end....and also Indonesian corporates. Indonesia overall is still quite structured on natural resources in lot of areas....transitioning to more kinds of industry and services will take time....but that will be overall the heading this decade.

Jokowi administration second term is now having more focus on human resources development after infrastructure and the effort to add more value to our natural resources ( which keep being pursuit until now). The Covid pandemic in 2020 and 2021 make the government spend more on health sector and economic stimulus ( helping the vulnerable existing industries where SME is the main target, social welfare program ) and it make the human resource development program get disturbed.

Regardless of that Finance Ministry has made LPDP institution inside their ministry to manage around 1.7 billion USD this year intended to finance scholarship for higher education degree ( Master and Phd ) in Western universities. Some of the budget will also be intended for R&D program.

Research institution (BRIN) where LAPAN, BPPT, and LIPI are inside it is now a separate institution and with the same level like Ministry. Hopefully, R&D research budget is getting bigger due to that structural reform. SOE in defense sector also make holding company that is targeted to legally form in early 2022 and set up unified research division. This SOE defense holding are also making civilian products (PT PAL, PTDI, PT LEN, PT DAHANA).

Jokowi has also made new ITB campus in West Java ( our high tech industry based region (automotive/automotive parts, etc ). So ITB now has 3 campuses, Bandung (started by Dutch), Jatinangor (started by SBY administration), and Cirebon (started by Jokowi administration), all of them are located in West Java.

 

[Nilgiri]

Any way what is you opinion in high jump of Indonesia GDP from 2031 into 2036 ? The CEBR never tell the reason, maybe this analyst that they are going to sell. My opinion is that large gap is between number 15 into 14, while for 14 into 8, the nominal GDP between those countries are not much different.

Bro, I honestly find projection past 10 year time frame quite speculative at best.

That is because a lot of things change and a lot of things disrupt (compared to what you base on w.r.t last 20 years etc)

How you grew in the last 10 years and the 10 years before that is always quite different to how you grow in the next 10 years.

This decade world economy wise, how US and PRC relations change will be quite impactful on other countries.

It will be the most consequential disruption (that did not exist previously) I feel.

We are already seeing lot of tech VC for example come to ASEAN (Indonesia, Vietnam) and India as result of US changing relationship with PRC (more than before).

Over next few years for example Indonesia should try double its market cap (to 1 trillion) if all things proceed well...by absorbing what PRC is rejecting and squashing now (due to its internal politics and worsening relationship with US/West).

A 1:1 - 2: 1 market cap/GDP ratio is most robust one I feel for large population developing country (both providing leverage for the now and also indicating the "Doubling energy" for GDP/production/wealth etc going forward).

India used to have 1:1 ratio here (i.e market cap and GDP were both around 2.5, 3 trillion etc) now its market cap is moving to 2:1 in next 3 years or so.

So Indonesia must look to double its market cap to 1 trillion ASAP (1:1 ratio)....it will show it is becoming more innovative. 6 unicorns now must turn to 12 unicorns ASAP etc. This kind of stuff is what comes up in board meetings a great deal when they look to make their investment plan strategy.

There is also the fact that we are entering new overall leverage ratio era...and what that will do w.r.t long term inflation and also overall fiscal and corporate buffers esp for cross border (i.e w.r.t surplus banks + companies that might going forward now be more careful with debt + investment they issue on it).


=====================

But CEBR past 2030, I have skepticism to follow much. The biggest issue I see is the overall leverage ratio environment of largest global economies.

The 20 - 40% era is over (that makes the hallmark of how growth was channeled in past 20 years even with the 08 shock + US reckless global war spending)

We are now entering the 50%+ leverage era (because of US steering it there by above reasons and also China + EU being tied to US system)

It will have effects on capital transfer and "easy money" (both good and bad, depends on the country and its context).
But it will be different, that I am certain on.

US is currently leveraged at about 60 trillion liability on 120 trillion wealth.
PRC is about 40 trillion liability on 80 trillion wealth.

This situation has never existed before in the world.

These ratios were far lower in last 20 years.

So I am really unsure how CEBR and others project past 2030...especially with any confidence.

They always tend to assume trajectories just continue in some status quo.

I very much doubt it. I see some ceilings coming into view more than ever before.

With wise and strategic decision making though, Indonesia, India, Vietnam etc can leverage things in their favour well.

But I think the plan should be do best in 5 years and then another 5 years.

Beyond that its too difficult to see, its past the horizon so to speak.

If you do well in 10 year timeframe though, you set things up better for next 10 years near automatically and so on.

Jokowi administration second term is now having more focus on human resources development after infrastructure and the effort to add more value to our natural resources ( which keep being pursuit until now). The Covid pandemic in 2020 and 2021 make the government spend more on health sector and economic stimulus ( helping the vulnerable existing industries where SME is the main target, social welfare program ) and it make the human resource development program get disturbed.

Regardless of that Finance Ministry has made LPDP institution inside their ministry to manage around 1.7 billion USD this year intended to finance scholarship for higher education degree ( Master and Phd ) in Western universities. Some of the budget will also be intended for R&D program.

Research institution (BRIN) where LAPAN, BPPT, and LIPI are inside it is now a separate institution and with the same level like Ministry. Hopefully, R&D research budget is getting bigger due to that structural reform. SOE in defense sector also make holding company that is targeted to legally form in early 2022 and set up unified research division. This SOE defense holding are also making civilian products (PT PAL, PTDI, PT LEN, PT DAHANA).

Jokowi has also made new ITB campus in West Java ( our high tech industry based region (automotive/automotive parts, etc ). So ITB now has 3 campuses, Bandung (started by Dutch), Jatinangor (started by SBY administration), and Cirebon (started by Jokowi administration), all of them are located in West Java.

Indonesia has managed its fiscal deficit reasonably well...even with stimulus spend.

That is very good thing to see. Less govt has to take debt, the more room it has on many things....and also room for private sector (corporates).

It is why EM funds are very bullish on Indonesia (along with Vietnam and India). This decade should be good sweetspot for these countries as lot of things align up well better than last decade for investment flows.

The govts simply must keep finances in reasonable shape (keep debt and inflation under control) and continue reforms.

It is all about who can provide best network of qualitative man-hours (labour) for relevant production...and also design....and ready markets nearby (thats where India and Indonesia really have good advantage).

The results of the strategic changes etc within that (that you mention) will be materialised to measure downroad with time (as it takes time and needs good transmission + follow up etc)....like 10 years later etc. Let us hope for best.

 

[Madokafc]

You just don't know when conflict, pandemic or large scale natural disaster struck your own country. Talking about something like Covid 19 as an example, which disrupt many prediction about economy growth in the world, then something like Tsunami 2004, not to mention possible war in Taiwan straits and Korean peninsula

 

[Nilgiri]

You just don't know when conflict, pandemic or large scale natural disaster struck your own country. Talking about something like Covid 19 as an example, which disrupt many prediction about economy growth in the world, then something like Tsunami 2004, not to mention possible war in Taiwan straits and Korean peninsula

Yah all the projections that were made in 2000s (about 2020) were affected a lot by 2008 economic shock as well. Has huge lingering impact to this day.

But even with "best case scenario" with zero shock/disruptions of sizeable degree, there is now a different era of structural bubble with the leveraging having increased to this much...and fact PRC following same route (if you look at the internals that are not discussed so much).

Some others make arugment that the overall equity (asset minus liability) remains the same and that is what is more important

....but I don't share that view, to me its a % (leverage) argument as that shows the intensity in the setting just like per capita > total.

 

[Madokafc]

Interesting some motorcycle modification workshop even starting to build, casting and molding their own handMade Engine. Look crude in the process but actually working

 

[Ravager]

Interesting some motorcycle modification workshop even starting to build, casting and molding their own handMade Engine. Look crude in the process but actually working

I've said this couple of times allready ...building our own engines be it gasoline , diesel and turbojet ( yeah , i stretched it a bit there ) was allready within our mean of technological capabilities . It's the economical scalability that was never been met nor achieved .
I guess our domestic market hasn't been nationalistic and ready enough for such endeavours ...

 

[R4duga]

Interesting some motorcycle modification workshop even starting to build, casting and molding their own handMade Engine. Look crude in the process but actually working

bootleg engine parts casting like this has already been done even in country with worse economy and living standard than us.

they will not have same quality or endurance (let's say tensile strength) compared to the one that made in technologically advanced and sophisticated Foundry with strict QA.

those probably are just some fast and cheap replacement, before the customer decide to save up money to buy the legit or original parts from the manufacturer.

 

[Madokafc]

bootleg engine parts casting like this has already been done even in country with worse economy and living standard than us.

they will not have same quality or endurance (let's say tensile strength) compared to the one that made in technologically advanced and sophisticated Foundry with strict QA.

those probably are just some fast and cheap replacement, before the customer decide to save up money to buy the legit or original parts from the manufacturer.

In the video i don't see casting of molten iron or metal to build the parts though, more or less they are using available parts from God knows sources

 

[Madokafc]

Btw this kind of "cor logam" or foundry casting had been standard for learning to student in manufacturing study in Indonesia

 

[Madokafc]

Single line Smelter of PTFI

 

[R4duga]

In the video i don't see casting of molten iron or metal to build the parts though, more or less they are using available parts from God knows sources

sorry, i give the wrong video example.

 

[Var Dracon]

I've said this couple of times allready ...building our own engines be it gasoline , diesel and turbojet ( yeah , i stretched it a bit there ) was allready within our mean of technological capabilities . It's the economical scalability that was never been met nor achieved .
I guess our domestic market hasn't been nationalistic and ready enough for such endeavours ...

This is the reason why Texmaco, despite originally a textile manufacturer, could make its own engine.

The parts presented in the videos above are simple. But designing a working, feasible engine, as cheap as possible and with good power output is another thing.

Ever heard about Indonesians making an engine (any type of engine) with >40 hp power? I certainly never, such feat need a teamwork of experienced engineers. Texmaco can produce engines, but they're license-produced them, the same happened with Boma Bisma Indra with their Doosan engine.

The engines that we design ourselves, like Rusnas engine and Fin Power engine, only has small output. Need more effort, cost, willpower, and much more manpower (engineers who design their parts) to make more powerful engine.

 

[Madokafc]

 

[Nilgiri]

This is the reason why Texmaco, despite originally a textile manufacturer, could make its own engine.

The parts presented in the videos above are simple. But designing a working, feasible engine, as cheap as possible and with good power output is another thing.

Ever heard about Indonesians making an engine (any type of engine) with >40 hp power? I certainly never, such feat need a teamwork of experienced engineers. Texmaco can produce engines, but they're license-produced them, the same happened with Boma Bisma Indra with their Doosan engine.

The engines that we design ourselves, like Rusnas engine and Fin Power engine, only has small output. Need more effort, cost, willpower, and much more manpower (engineers who design their parts) to make more powerful engine.

It needs concentrated funding (to make the organisation of people) and then sustained import of lot of several heavy capital machinery.

Preferably as early as possible.

A deep study as possible of how Japan and then Korea did it...(and then became involved heavily in India's efforts later in cold war) for example is useful.

The later you get into this, the more expensive it becomes as labour+corporates are pulled+competing in all kind of other sectors downstream.

Regather + redeploy energy (and much more competitive world for capital intensive machinery + investment etc for it) is basically lot higher now in every opportunity cost and price level.

This is big problem confronting India and electronics production for example right now.