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Development of Indonesia's Economy

1965 words (8 pages) Business Assignment

10th Nov 2020 Business Assignment Reference this

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Over the past few decades, the Indonesian economy has been going through strong growth, and has been accompanied by reduction of volatility and a relatively stable inflation. “The economic performance of Indonesia was influenced by government policy, the natural resource endowment of the region, and its young and growing population” (Rajah). Moreover, Indonesia's market freedom has expanded in response to the industrialization of its economy. Even though some people may see it as falling behind compared to other APR countries, it has grown and is steadily becoming a more developed country because of a better GPD growth rate, improved economic performance; moreover, the adoption of Japan’s industrial policy economic model has helped promote possible benefits to Indonesia. “An industrial model policy refers to organized involvement of government in economic guidance by encouraging investment in targeted industries. Such a plan aims to allocate capital through manufacturing industries through a program of tariffs, discounts, and growth opportunities to push the economy along a path” (Horridge). The Japanese industrial model policy is key to the transformation of Indonesia because of its transferability towards their policies on prices and distributions, real interest rate policies and foreign exchange rate policies.

Since the mid-20th century, Indonesia has played a marginal role in the world economy, and its significance has been significantly lower than its scale, wealth, and geographic position seems to warrant. The nation is a big oil and natural gas exporter. Moreover, Indonesia is one of the world's leading rubber, coffee, cocoa, and palm oil suppliers and a wide variety of other products. Poor infrastructure, particularly transport infrastructure, slows economic growth in Indonesia. Transport problems hamper both industries by putting additional costs on regional trade and trade with other countries. Although Indonesia has remained a major merchant of fabricated products, tall innovation, and specialized abilities since the early 1970s, the country’s financial base has moved from the essential division to auxiliary and tertiary industries—manufacturing, exchange, and administrations. Fabricating outperformed agribusiness in terms of commitment to net household item (GDP) within the early 1990s and has kept on be the biggest single component of the country’s economy.

The industrial strategy that Indonesia needed to take after was primarily a vital exertion to energize the improvement and development of all or portion of their economy, this would center on all or part of their manufacturing division. “Since the 1997–98 Asian financial crisis, the Indonesian financial approach has reliably prioritized solidness over less secure pathways to fast financial development” (Noone). For example, they state, “Indonesia decided to take the industrialization approach because it was the manufacturing industry that had been the driving drive behind Indonesia’s financial development” which then implies that Indonesia was steadily planning their rise and prosperity. The Indonesian economy is in the growing stage, and Indonesia’s fabricating industry can still be seen to serve as the backbone of the country’s economic development. Furthermore, a term regularly utilized in Indonesia is “down streaming,” it implies preparing crude materials into items at domestic, instead of trading them abroad for other nations to add value. Indonesia’s independence, financial fumble and the subordination of advancement to political beliefs beneath the “Guided Economy” approach of the countries to begin with the president, Sukarno (1949–66), drove to budgetary chaos and a genuine weakening within the capital stock. With a major alter of financial course after Suharto expected control within the mid-1960s, “a few degree of solidness was recaptured, and the conditions for an efficient arrangement of restoration and financial improvement was built up” (Corruption in Indonesia).

Through this financial chaos, the Indonesian economy needed to find a way out of the hole they were in which pushed them to the idea of industrialization, this will guide them on their journey to becoming a growing industrial environment.

Furthermore, since Indonesia is well known for its resources and materials it provides to other nations, this influenced their transfer process of becoming an industrialization model. The 1997 financial crisis exposed certain vulnerabilities in the economy such as a poor money-related system, unrewarding real estate investments, and shortcomings within the legal framework. The ongoing decay of government bureaucracy at all rates has become widely known as KKN (korupsi, kolusi, nepotism). There are many instances of bribery in Indonesia's past history, we use it as our starting point for the New Order dictatorship of President Suharto (1965-1998), “which is marked by remarkable steady and sustainable economic development (with an average Gross National Product of + 6.7% per year between 1965-1996), but is also renowned for its corrupt nature” (Yusuf). Foreign capital affects Indonesia's economic development, however, with short-sighted government policy, everything can be erased. Highly protectionist trade policies have effectively frozen Indonesians from the international economy for decades since the 1960s. The current government of Indonesia appears to have taken a different direction, sending all the right signals to cagey lenders recently. The government has set a reasonable target of about 5 percent capping inflation. By setting the target of 5 percent, it is not too big neither too little to make a change for expanding Indonesia’s economy for the better. Therefore, by following the new model approach, the sectors of small and medium-sized private entities, much of the projected growth in the Indonesian economy is expected to occur. Such companies, which “recruit more than 100 million Indonesians and contribute more than 60% of the country's GDP,” can reasonably be said to be the cornerstone of the new economic system.

Even though there was a time where Indonesia was on the bottom, they eventually found a way to rise and seek new policies and models to make a change for their country, people and environment. Furthermore, an example of rock bottom to escalation would be when, “Indonesia saw itself as a country exclusively exporting resources. A tree in a virgin rainforest in Indonesia could generate revenue of $2 for the island economy. The tree would then be transported to a ship destined for Japan, where it would be transformed by semi-skilled workers in a sawmill into industrial lumber the sold for $8 per board foot, about 1,000 times the raw material value.” (Next Industrial-). This affect the Indonesian old way because before they were being taken advantage of whereas now, the new economic model they follow is slowly but steadily pushing them towards a better future for their country. Indonesia's policy is now seeking to build the added value at home, opting to hire local people and sell the imported timber itself, preferably retaining the price of a few hundred dollars in the domestic tax base. By adding this to their economy, it’ll help them gain growth in their income, exports and imports because all the work would be happening within their country rather than with other resources.

Through a period, there has always been the ups and downs of the Indonesia economy, it just has taken time to find a true method to assist it in growing. By industrializing their nation, not only did it open the door of opportunity for their economy, but for their government, it created a way for people and other officials to crack down on the chaos and corruption. This is a great start for Indonesia because by solving the corruption taking place, they will be able to find ways to defeat it and avoid other conflictions in the future. In addition, a new government organization was set up in 2003 to address corruption as a count number of urgency.

Through studying and prosecuting corruption cases and controlling public administration, this government agency, the Corruption Eradication Commission (KPK), is tasked to liberate Indonesia from corruption.

No matter the case, there will always be a newer better or profitable solution to the crisis in Indonesia; however, they must continue to industrialize and grow as an economy in order to prevent another crisis. Preferably, they should follow the new policies taking place, and be open to make trades with other nations, and learning to bargain for their exports and imports so it can benefit them in the long run. In addition, they can use the method of an industrial packing business to pursue in the nation’s economy. “As one of the industries that almost every other industry depends on to thrive, industrial packaging is definitely along for the ride in Indonesia’s coming growth spurt” (The Next Industrial-). Increasing production of goods inevitably outcomes in wide-ranging upgrades and industrialization of existing amenities that need to be updated to the ability to meet demand. Another solution taking place that can help the transition of the Indonesian economy would be by selling rigid plastics, bulk packaging and of course, paper and board. Over several decades, the Indonesian economy has recorded relatively strong average growth. As Indonesia progressively developed and incorporated into the global economy, significant structural change has taken place over this period. Which is why the industrialization and the industrial packaging will assist Indonesia for the better of their economy.

References

  • Center for International Economic Collaboration. “Indonesia's Re- ‘Industrialization’ and Japan Yuri Sato Executive Vice President Institute of Development Economies (IDE-JETRO) [Date of Issue: 30/November/2018 No.0285-1094].” IIST e-Magazine (English), https://www.cfiec.jp/en-m/2018/0285-1094/.
  • “Indonesia.” Indonesia Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption, https://www.heritage.org/index/country/indonesia.
  • “INDONESIA: THE NEXT INDUSTRIAL BIG THING.” INDONESIA: THE NEXT INDUSTRIAL BIG THING, 16 Aug. 2018, https://www.ptchronos.com/en-ca/blog/indonesia-the-next-industrial-big-thing.
  • “Industrialization in Indonesia since the 1970s (IDE Research Paper No.5).” Institute of Developing Economies, https://www.ide.go.jp/English/Publish/Download/Papers/05.html.
  • Investments, Indonesia. “Korupsi Di Indonesia.” Korupsi, Kolusi & Nepotisme Di Indonesia - Analisis KKN | Indonesia Investments, https://www.indonesia-investments.com/id/bisnis/risiko/korupsi/item235.
  • Leinbach, Thomas R., and Asvi Warman Adam. “Economy.” Encyclopædia Britannica, Encyclopædia Britannica, Inc., 4 Dec. 2019, https://www.britannica.com/place/Indonesia/Economy.
  • Rajah, Roland. “Indonesia's Economy: Between Growth and Stability.” Lowy Institute, Lowy Institute, 26 June 2019, https://www.lowyinstitute.org/publications/indonesia-economy-between-growth-and-stability.
  • Touwen, Jeroen. “The Economic History of Indonesia.” EHnet, https://eh.net/encyclopedia/the-economic-history-of-indonesia.
  • Adb.org. (2019). [online] Available at: https://www.adb.org/sites/default/files/publication/217206/ino-paper-17-2016.pdf [Accessed 11 Dec. 2019].
  • Rba.gov.au. (2019). [online] Available at: https://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf [Accessed 11 Dec. 2019].

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