Indonesia Economic Conditions

By | December 23, 2021

The Indies Dutch East had become the most accomplished example of ‘country of plantations’. Therefore the Indonesia independent, despite the abundance of natural resources, it had to face serious socio-economic problems, aggravated by demographic growth, by the imbalance between Java and the rest of the State, by the fragmentation of the archipelagic territory. An economic policy initially aimed at self-sufficiency, the substitution of imports and the nationalization of the means of production was followed by a partial return of companies to private individuals and a resumption of economic relations with many foreign countries, among which Japan quickly emerged.. In recent decades, economic progress has experienced alternating phases. The constant trade surplus has allowed infrastructural and productive investments, but population growth and, above all, an unbalanced allocation of resources have meant that disposable income per resident did not grow fast enough: with 2,142,300 dollars per capita per year in average (2008), a large part of the Indonesian population lives in conditions of substantial poverty, although adequate conditions of subsistence and protection have now been reached: it is estimated that about half of Indonesians are below the poverty line. Dependence on the export of raw materials and on foreign capital, the burden of public debt, widespread cases of corruption, the too low cost of labor (and therefore excessively low internal income and consumption), but also a high unemployment rate, are among the weaknesses of the Indonesian economy. The ‘Asian crisis’, generated by international currency speculation in 1997, hit this still weak structure, the effects of which were felt, on the level of the financial and monetary organization, until the first years of the following century.

Agriculture is still the basis of the Indonesian economy, occupies 44% of the active population and generates about 13% of the gross domestic product, although only about 10% of the total area is cultivated (in Java, however, over 70 %); Government programs for agricultural colonization of the less densely populated islands have been in place for some time, to which peasant families from Java have been transferred. With the introduction, in colonial times, of plantation crops (coffee, tobacco, sugar cane, tea, rubber plants) and with the related agricultural transformation works, the traditional forms of agriculture regressed or disappeared (itinerant agriculture it is still practiced, but to a lesser extent), also because European commercial agriculture was established on the best soils; speculative crops then underwent reductions, also due to the tendency to promote food crops, in particular rice – whose production went from about 10 million t in 1955 to 54.4 million in 2006 – which with maize and fish is the basis of the local diet. The irrigated areas of Java and the neighboring ones Madura, where two harvests per year are possible, provide most of the product; but rice is widespread in many other islands, even in non-irrigated rice fields on terraced slopes, up to 1500 m asl. Another widely cultivated cereal, especially in the eastern areas of Java and Sumatra, is maize (3.3 million ha and 11.6 million t). Almost exclusively of local interest, but considerable in quantity, are cassava (19.9 million tons) and sweet potato. The cultivation of the oil palm, which was one of the pillars of the colonial economy, still produces 3 million tons, while over 16 million tons is the production of coconut palm fruits, also used for copra; rubber plants (2 million tonnes), soybeans, peanuts, sugar cane, tea, coffee still have some weight, tobacco, but the greatest growth concerns fruit (bananas, mangoes, pineapples, citrus fruits) and vegetables. Of the spices, for which the Moluccas were famous for centuries, only cinnamon and pepper remain important. Forests cover just under 60% of the total area; the timber obtained (98.8 million m 3in 2006) and exported, of great value (teak, bamboo, ebony, sandalwood), makes Indonesia one of the world’s leading producers; The alarm is alive for the illegal extraction of timber and, also, for the recurrence of fires that are reducing forest cover at an excessive rate, particularly in Borneo: the international pressure on forestry companies and on the government is very consistent because the felling has decreased and the areas of naturalistic protection have been enlarged (which, moreover, is already applied to about 14% of the total surface). Livestock farming is not very developed, despite recent growth (sheep and goats 22 million; cattle 11; pigs 7), and meat-based nutrition, which is predominantly vegetarian, is entrusted to fishery products (5, 3 million t), resulting in good measurement of the exploitation of inland waters and aquaculture facilities.¬†For Indonesia 2018, please check

Subsoil resources are conspicuous and varied. The oil, discovered in Sumatra, is today extracted from Sumatran fields, but above all from Borneo; in the province of South Sumatra, the capital, Palembang, an old plantation city, has drawn reasons for transformation and development from the oil economy. The extraction is around 50 million tons, after having been much more conspicuous in the past. In the 1980s oil guaranteed 40% of exports, but now production is almost completely absorbed by domestic consumption, so much so that in 2008 the Indonesia left OPEC. The production of natural gas, in the valleys of the Ogan and Musi rivers (South Sumatra province) and of coal (195 million t), is on the rise. Among metals, gold is important (I. is in the very first places in the world),

Secondary activities contribute to the formation of GDP for 46%, while employing just over 13% of assets. The more recently installed plants (oil refineries, metallurgical, chemical, mechanical industries), however, remain substantially unrelated to the characteristics of the country, being due to foreign investments, and have not promoted real development; Also relevant are the vehicle assembly lines, shipyards, aeronautical constructions, electronics, electrical engineering, the production of household appliances, cement and tires, and then sugar refineries, oil mills, tobacco factories, textile plants (cotton).

Only Java has a real rail and road network. The railway extends for almost 6500 km; the roads, about 1/3 of natural ground, extend over just under 370,000 km; 3,600,000 motor vehicles are on the road. Of great importance, given the physical characteristics, is maritime navigation; the main ports are the Javanese ones of Surabaya, Tandjungperiuk (seaport of the capital) and Semarang; also Padang, in Sumatra, and Ujungpandang, in Celebes. Jakarta is served by an international airport. The tourist movement is growing (directed to Java and Bali above all), which has exceeded the threshold of 5 million arrivals.

The trade balance of the Indonesia it is constantly in profit, with a limited increase in imports and a significant increase in exports. The first are made up of artifacts and food products; the latter mainly consist of oil and other raw materials, but also significantly affect machines, electrical and electronic material, clothing. The most intense exchanges take place with Japan, followed by Singapore, the United States and China.

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