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What political factors explain indonesia s poor economic performance what economic factors are these

World Bank Visible in the table above is that the global economic downturn brought on by the global financial crisis in the late 2000s had a relatively small impact on the Indonesian economy as compared to the impact it had on other countries. Despite sharply falling commodity prices, a falling benchmark Jakarta Composite Index, higher domestic and international bond yields, and a depreciating exchange rate, the economy of Indonesia was still able to grow decently in 2009.

In 2010 the World Bank wrote that, amid robust economic growth, each year around seven million Indonesians are added to the country's middle class. Although the inflow into the middle class has been curbed due to the country's economic slowdown that emerged between 2011-2015, Indonesia still contains a massive consumer force that drives the economy and triggers rising domestic and foreign investment after 2010 obviously many investors are eager to invest in a country where there exists a 260 million population that is characterized by rising per capita GDP, hence forming a potentially huge market for a whole range of products and services.

Determining the exact number of middle class Indonesians is a matter of definition. In late-2017 the World Bank said around 52 million Indonesians fall in the middle class category. But all institutions seem to agree that Indonesia's middle class will roughly have doubled by 2030.

Economy of Indonesia

This rising number of middle income earners is a huge potential for economic growth. However, after peaking in 2011 Indonesia's GDP growth started to stall in the 2011-2015 period. There are several factors that explain this economic slowdown: Particularly the rapidly moderating economy of China caused concern. The world's second-largest economy grew 6.

Declining economic expansion of China has an immediate impact on Indonesia as both countries are important trading partners exports to China account for nearly one-tenth of total Indonesian exports. It is estimated that for each one percentage point decline in China's GDP growth, Indonesia's economic expansion is curbed by 0.

  • Inflation for January and February 1998 was 20 per cent and estimates for annual inflation for the coming year have ranged from 40-50 per cent up to 100 or even 200 per cent;
  • There have been sporadic riots and the emergence of a pro-democracy student movement, but the Army has crushed the riots and kept student protest confined to the universities;
  • Australia's Response The Australian Government's response to the Indonesian crisis has been to provide direct emergency assistance to Indonesia and to contribute, both financially and at a policy level, to the IMF program of assistance.

Although China's economy rebounded to 6. Being a major commodity exporter and lacking a well developed downstream industryIndonesia's export performance is affected heavily in times of low commodity prices for example coal and crude palm oil.

Low commodity prices are not only caused by weaker global demand but also because of an oversupply. Obviously, rebounding commodity prices have a positive impact on the global economy.

Starting in mid-2013 Indonesia's central bank Bank Indonesia raised its key interest rate BI rate from the historic low of 5.

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Bank Indonesia tightened its monetary policy in an effort to combat high inflation which accelerated sharply after several fuel subsidy reformscurb the country's wide current account deficit, and support the rupiah which had been plagued by heavy pressures amid monetary tightening in the USA.

In 2015 capital outflows from emerging markets re-emerged as the world was preparing for higher US interest rates. In December 2015 the Fed raised its benchmark interest rate for the first time in a decade followed by another rate hike in December 2016.

However, as Indonesian inflation and the current account deficit improved to manageable levels, while the rupiah had stabilized against the US dollar from late-2015, Bank Indonesia could finally loosen its monetary policy.

Throughout 2016 Indonesia's central bank was able to cut its interest rate drastically from a high of 7. However, as per early 2018 credit growth has remained bleak in Indonesia.

Gross Domestic Product of Indonesia

These elections were basically a battle between PDI-P backed Joko Widodo the reform-minded market favorite and Gerindra-backed Prabowo Subianto a controversial former army general as well as former son-in-law to Suharto. Although it was expected to become an easy victory for Widodo, it turned out to be a close race and even required a verdict from the Constitutional Court to confirm the result of the presidential election.

For about five months, the year 2014 was plagued by severe political uncertainties due to these elections and led to a slowdown in investment realization, hence curbing the country's economic expansion.

Both men are expected face off in a new battle for the 2019 presidential election, a race that may become just as tight.

Crisis in Indonesia: Economy, Society and Politics

As Indonesia is a young democracycontains a highly pluralistic society, and has a large amount of swing voters due to low party identification surprises are more than possible. Hence, elections in Indonesia always give rise to a high degree of uncertainty and if there is one thing that investors hate it is uncertainty. Legal uncertainty or uncertainty about the government's economic policies is also a major bottleneck as it makes investors think twice before deciding to invest in Indonesia see also our Risks section.

For example, in line with the 2009 Mining Law, Indonesia implemented the ban on exports of mineral ore in January 2014. Although this ban was not implemented in full force immediately some miners were allowed to resume mineral ore exports provided they complied with several requirements, including the establishment of domestic smelting facilities and although the aim of this new policy is actually good reducing the country's reliance on highly volatile raw commodity pricesit also led to a sliding export performance for Indonesia as well as major concerns about legal certainty because by suddenly changing the rules, the government breached many contracts.

Another political issue that hampers Indonesia's economic expansion is slow government spending. Due to red tape bureaucracy and weak coordination between government institutions both on the central and regional levelgovernment spending is not optimal. Considering household consumption accounts for between 55-58 percent of Indonesia's overall economic growth, stagnant household consumption growth puts brakes on the nation's macroeconomic growth.

The exact reason behind this trend is somewhat of a mystery and continues to puzzle analysts and policymakers.

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But given third-party funds in Indonesia's banking sector has risen sharply over the same period, it could mean that purchasing power has actually not weakened but Indonesian consumers simply prefer to save their funds rather than spend it. Some argue it shows a structural transition: And as time goes by the role of the younger generations is increasingly taking over the role of the older generations in the Indonesian economy, hence this change in spending is now being felt.

Indonesia's Household Consumption Growth 2013-2017: