Indonesia 🇮🇩: A Rising Powerhouse in Southeast Asia
We spent a week in Indonesia for OIC COMSTECH International Workshop on Managing Science and Technology Parks STPs, 4–7 September 2023
hosted by Universitas Airlangga, Indonesia 🇮🇩. A week spent in Indonesia deeply inspired me to study the Indonesian Economy, Culture & History!
What's Common Between Pakistan & Indonesia
Being humble student of history — I will begin with shared history — Pakistan & Indonesia are bonded by River Indus, a common cause of Freedom and a shared future. My brothers & sisters living 5000 Kms away in Indonesia don't know that the name “Indonesia” is derived from “River Indus” flowing in Pakistan — many in Pakistan even don't know! River Sind or Indus — through Persian, Greek & European influence — has given names to ‘Three Indiës’ — India, Indonesia & West Indies.
When on August 17, 1945, President Soekarno and Dr. Hatta proclaimed independence on behalf of the people of Indonesia — Muhammad Ali Jinnah the Father of Pakistani Nation — called on Muslim (Pakistani) British Soldiers to support the Indonesian cause of independence (two years before Pakistan’s Independence August 14, 1947) — 600+ participated — and one Mohammad Sadiq was awarded a certificate by President Soekarno during his visit to Pakistan in 1963!
Highlights of my Learnings from Indonesia 🇮🇩 are:
BRIN: National Research and Innovation Agency of Indonesia 🇮🇩 has over 20K researchers and innovators with a budget of $736M annually.
🇮🇩 Digital Economy worth $77B and exports worth $291B
🇮🇩 16th largest economy globally, with a GDP of $1.4 Trillion.
The economy of Indonesia has emerged as a powerhouse in Southeast Asia, making it one of the largest and fastest-growing economies in the world. With its strategic location, abundant resources, and a growing population, Indonesia has become an attractive destination for foreign investors and businesses. In this article, we will explore the key factors that have contributed to Indonesia’s economic growth, its response to the COVID-19 pandemic, and its efforts to promote human capital, education, and environmental sustainability.
A Growing Economy in Southeast Asia
Indonesia, classified as a newly industrialized country, has experienced significant economic growth over the years. With a nominal GDP of over $1.4 Trillion in 2023, it ranks as the 16th largest economy in the world. In terms of GDP based on purchasing power parity (PPP), it stands as the 7th largest economy globally. The country’s internet economy has also seen remarkable growth, reaching $77 billion in 2022 and projected to exceed $130 billion by 2025.
The Indonesian economy heavily relies on the domestic market, government budget spending, and state-owned enterprises. The government plays a crucial role in regulating prices of essential goods, such as rice and electricity, in its market economy. However, since the 1990s, the majority of the economy has been controlled by individual Indonesians and foreign companies.
Economic History: From Crisis to Recovery
Indonesia’s economic journey has been marked by various challenges and milestones. The country faced a severe economic crisis during the 1997 Asian financial crisis, which led to the government taking custody of a significant portion of private sector assets. Through debt restructuring and privatization, the economy gradually recovered. In 2012, Indonesia became the second fastest-growing G-20 economy, with an average growth rate of around 5% in subsequent years.
However, the COVID-19 pandemic posed a significant setback for Indonesia’s economy in 2020, resulting in a recession with a negative growth rate of -2.07%. This was the country’s worst economic performance since the 1997 crisis. Despite this setback, the economy rebounded in 2022, with a GDP growth rate of 5.31% due to the removal of COVID-19 restrictions and increased exports fueled by higher commodity prices.
Looking towards the future, Indonesia has ambitious goals for its economy. President Joko Widodo predicts that by 2045, Indonesia will become the world’s fourth largest economy, with a population of 309 million people. The country aims for a steady economic growth rate of 5–6% and a GDP of $9.1 trillion. The income per capita is expected to reach $29,000, reflecting the country’s aspirations for higher standards of living.
Indonesia’s Response to the COVID-19 Pandemic
The COVID-19 pandemic presented unprecedented challenges for countries worldwide, and Indonesia was no exception. To combat the spread of the virus and mitigate its impact on the economy, the Indonesian government, in collaboration with international partners such as the World Bank and the Asian Infrastructure Investment Bank, implemented several measures.
One of the key achievements in Indonesia’s response to the pandemic was the rollout of a national free vaccination program for adults. Since December 2020, the country has secured multiple sources of vaccine supplies, enabling it to expand its vaccination coverage. By March 2022, Indonesia had already vaccinated 70% of its targeted population with at least one dose, and 53.5% of the population was fully vaccinated.
In addition to the vaccination program, Indonesia increased its hospital capacity for isolation and critical care beds. The number of critical care beds rose from fewer than 4,000 in September 2020 to 11,124 in September 2021. The government also committed to covering COVID-related treatment costs for all its citizens, ensuring access to necessary healthcare services.
Moreover, Indonesia made significant progress in expanding its PCR testing network. Between March 2020 and February 2022, the number of testing labs increased from 49 to 964, enabling efficient testing and monitoring of COVID-19 cases. These efforts contributed to Indonesia’s position as the fifth-largest COVID-19 vaccination program in the world.
Promoting Human Capital: Investing in Nutrition and Early Years
Recognizing the importance of human capital development, Indonesia has implemented various initiatives to improve the well-being of its population. One notable program is the National Strategy to Accelerate Stunting Prevention, which aims to address the issue of stunting among children. In collaboration with the World Bank, this strategy has effectively reduced the national stunting rate by 6.4 percentage points since its implementation in 2018.
The Investing in Nutrition and Early Years (INEY) Program, supported by the World Bank, has played a significant role in the implementation of the National Strategy. This program has facilitated collaboration among ministries, government institutions, development partners, civil society, academia, and the private sector. Together, they have provided essential nutrition services to millions of pregnant women and children under two years old across the country.
Empowering the Poorest: The Family Hope Program
To break the cycle of poverty among the most vulnerable families, the Indonesian government established the Family Hope Program (Program Keluarga Harapan or PKH). This program aims to provide cash benefits to beneficiary families, encouraging them to access maternal and child-related health and nutrition services, as well as send their children to school. It also offers family development sessions and learning materials to beneficiary mothers, empowering them with knowledge on health, nutrition, parenting, child protection, and financial management.
Impact evaluations have shown that the PKH program has resulted in improvements in children’s education and health. A recent study revealed that the cumulative impacts of PKH can reduce stunting rates by around 9 percentage points. Families that graduated from PKH with improved socioeconomic conditions have maintained incentivized behaviors in education and health, even amid the challenges brought by the COVID-19 pandemic.
Transforming Education: Improving Quality in Remote Areas
Indonesia has been striving to improve education quality, particularly in remote and disadvantaged areas. The KIAT Guru pilot program, supported by the World Bank, has played a crucial role in this transformation. The program empowers communities and links teacher allowances to performance. Evaluations of the KIAT Guru pilot program have shown significant improvements in learning outcomes and parental engagement compared to non-pilot schools. The Ministry of Education and Culture has expanded the program to over 400 schools, issuing affirmative regulations on school operating funds for 55,115 schools serving remote and disadvantaged communities.
Efforts to enhance education outcomes have also been supported by the PKH program. It has helped overcome enrollment challenges for children aged 7 to 15, significantly reducing non-enrollment rates. The program’s coverage and benefit levels have expanded over the years, reaching 10 million poor and vulnerable families in 2020. Additional funding was allocated to support poor households during the COVID-19 pandemic.
Environmental Sustainability: Protecting Land and Oceans
Indonesia recognizes the importance of environmental sustainability and has taken steps to protect its natural resources. The World Bank has been instrumental in supporting the country’s efforts in integrated landscape management, reducing deforestation, and improving livelihoods. Programs such as the Program to Accelerate Agrarian Reform and the Sustainable Landscape Management Multi-Donor Trust Funds have provided clarity on land rights and land use in non-forest areas. The registration of more than one million land parcels in non-forest areas has been a significant achievement.
In collaboration with indigenous communities, the World Bank has also supported the Strengthening of Social Forestry and the Strengthening Rights and Economies of Indigenous and Local Communities projects. These initiatives have helped indigenous communities gain stronger recognition of their tenure rights. The Dedicated Grant Mechanism for Indigenous Peoples and local communities has enabled an Adat community to receive recognition within a state-owned forestry company’s jurisdiction for the first time. Additionally, the World Bank supports the National Mangrove Program, contributing to the rehabilitation and conservation of mangroves and promoting the livelihoods of coastal communities.
In the oceans sector, the World Bank has worked with the Indonesian government to transition to a blue economy through the Indonesia Sustainable Oceans Program (ISOP). This program focuses on sustainable fisheries, coastal livelihoods, ecosystem health, marine pollution reduction, and policy and institutional strengthening. Notably, the development of the Indonesia Maritime Policy Action Plan has provided guidelines for oceans policies and their implementation across ministries and agencies involved in the marine sector.
Conclusion: A Bright Future Ahead
Indonesia’s economy has displayed resilience and remarkable growth, positioning the country as a rising power in Southeast Asia. Despite the challenges posed by the COVID-19 pandemic, Indonesia has responded with determination, implementing various measures to combat the virus and support its population. The nation’s commitment to promoting human capital, education, and environmental sustainability further underscores its dedication to achieving long-term prosperity.
As Indonesia continues its journey towards becoming one of the world’s largest economies, it faces both opportunities and challenges. By leveraging its abundant resources, strategic location, and dynamic population, Indonesia has the potential to become a global economic powerhouse. With continued investments in human capital, education, and environmental sustainability, Indonesia is poised for a bright future in the global arena.
Indonesia and Pakistan have a long history of diplomatic relations and trade cooperation. With both countries being home to significant Muslim populations, there is immense potential for strengthening economic ties and forging stronger diplomatic bonds. In recent years, efforts have been made to enhance bilateral relations through increased economic diplomacy and trade agreements.
Indonesia and Pakistan have a strong foundation for economic and diplomatic cooperation. The growth of trade between the two countries, the establishment of the Preferential Trade Agreement, and the prospects for academic and tourism cooperation all point towards a promising future. By capitalizing on their economic potential and strengthening ties in various sectors, Indonesia and Pakistan can pave the way for enhanced trade, diplomatic relations, and regional cooperation. It is crucial for both countries to continue supporting each other and exploring opportunities for mutual growth, ultimately fostering peace and prosperity in the region.
About the Author: Imran Jattala is Project Director, National Incubation Center for Aerospace Technologies (NICAT). He is Co-Founder of Innovators Garage (IG) — Global Innovation Consulting — on a mission to make Pakistan a Top-50 Innovative Nation with a $500 Billion Innovation Economy by 2030 🇵🇰. He tweets at: ImJattala
