Indonesian Market Review

Indonesia holds tremendous market potential measured with all important indicators. The country is the fourth richest in population in the world and the natural resources are large. Indonesia’s economy has grown steadily during the past years and the political situation has remained relatively calm, which both have enhanced the development of democracy and functioning economy.

Indonesia is the largest economy in the Southeast Asia, which has enormous natural resources, is large in area and the fourth largest population in the whole world. However, this tremendous market potential has remained mainly unused. In the year 1996 Indonesia was ahead of most the neighbouring countries in the region measured with economic indicators, but today the situation is reversed.
Neighbouring countries like Thailand and Malaysia has developed rapidly and now even Vietnam is about to overtake Indonesia. It is still open, if this potential will ever be realised or will Indonesia be abided by the role as a raw material supplier for the expanding industries in China and India.
Indonesia is aware of this worst case scenario and is pursuing the leading position in ASEAN again. Yet, this will require dozens of millions dollars investments in infrastructure and energy within several next years. The forthcoming presidential elections in 2009 are going to be in a decisive role in pointing the direction of the development of the Indonesian economy.

Political sustainability has also contributed to smooth economic development within past years. Macro economy has stabilised and the public debt has decreased and further more the country has been able to curb inflation. The basic economic indicators are in a good state and the government’s goal is to keep up with this increasing trend.
Despite of the steady economic development, Indonesia is still a very poor country and there has not been reached significant results in poverty reduction so far. The increasing economic welfare of the elite has not trickled down to the poorest part of the nation. It is estimated that half of the population is living by less than two dollars per day. The economic development has not been sufficient enough to create more jobs and the unemployment rate has long remained in about 10% and the underemployment rate is even higher.

The greatest challenges to the Indonesian democracy are deeply rooted corruption, weak public administration and judiciary, poverty, inequality and domestic conflicts. Although the current president Susilo Bambang Yudhoyono set the target in 2004 to address these problems and to develop good governance in Indonesia, the progress has been rather slow.
Indonesia has also seen effort to improve the investment climate of the country by law reforms in tax, customs, regional administration and labour legislation sectors, however the implementation has been remote. Indonesia is a member of WTO and has cut import duties and other barriers to trade at least in theory. In addition to investing in infrastructure, these set targets and reforms should be realised soonest in order to attract more foreign investors.

According to the customs statistics, Finland exported goods to Indonesia by 160 million Euros, meaning a slight decrease from last year. Indonesia imported to Finland by 125 million Euros. However, these numbers should be considered critically and the actual volume of the trade between Finland and Indonesia is estimated to be twenty-fold compared to the official statistics. The most important export products from Finland are machinery for paper and mining industries and their maintenance, power engines and mobile phones.



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