Indonesia – A Model For Economic Growth

International giants like Adidas, Mizuno and POSCO have chosen Indonesia as the country in which to carry out their operations.

The Indonesian economy will grow by 6% this year, while the developed countries still face the effects of the recession. Indonesia has benefited from the advance of the strong emerging economies such as China in order to encourage its exports and has managed to attract foreign investments worth billions of dollars.

For the United States and Britain, an unemployment rate of only 7% remains difficult to achieve. Indonesia, however, manages to maintain that rate through relatively cheap labor, the minimum wage in the country hovering at around $ 100.
Large companies prefer to open up factories here or move them from China, where the recent economic growth and central bank’s decision to loosen the course of the national currency, the Yuan, which led to the currency’s appreciation, made investors in China become  more reluctant.

“We are talking about a lot of displacements from China. The Yuan, the increase in salaries, the strict regulation of work and all the problems China had to face, “said Mari Pangestu, Indonesian Minister of Trade, quoted by Bloomberg.

International giants like Adidas, Mizuno and POSCO, the latter being the third largest producer of steel, have chosen Indonesia as the country in which to carry out their  operations.

Foreign investments of billion dollars

POSCO will invest this year six billion dollars to build a plant in Indonesia in partnership with a local manufacturer. Only in the second quarter of this year, the foreign direct investments in Indonesia reached $ 3.7 billion, representing an increase of 51% over the same period in 2009. Moreover, the trade liberalization and the implemented fiscal reforms have managed to attract foreign investors which became more cautious since the outbreak of the crisis.

Thus, Indonesia was for them a safe investment, the State obtaining foreign investments of $ 14.9 billion in 2008 and of over ten billion in 2009. In the coming years, the Indonesian Investment Coordinating Board in Jakarta (BKPM) estimated 30-40 billion dollars worth of foreign investment annually.

Trade liberalization

In January, Indonesia and China signed an agreement to eliminate duties on thousands of products traded between the two countries. Although some officials in Jakarta initially feared an influx of cheap goods manufactured in China, figures have shown the opposite: in the first three months of the year, Indonesia’s exports to China have doubled, while those of China to Indonesia have increased by only 50%.

Thus, the difference between exports and imports to and from China for the January to April 2010 period was of only 1.6 billion dollars, much of the goods being brought by China representing equipment for the modernization of the industry, informs “The Jakarta Globe”. The annual exports of Indonesia to China are worth $ 12 billion, and the Trade Minister expects these to grow to 20 billion dollars with the help of this agreement.

In addition to raw materials such as tin, copper, timber and cocoa Indonesia also exports goods like palm oil, shoes and musical instruments. To all of these are added the proven and potential oil reserves of 8.3 billion barrels. The amount extracted this year, is on average, of 965,000 barrels of oil per day, according to Reuters.

To ensure that the country will continue rising, President Susilo Bambang Yudhoyo included in the draft for the 2011 budget presented to the parliament last month investments of over 13 billion dollars for infrastructure, according to AFP.

Their currency, the Indonesian Rupiah is gaining more ground

The favorable economic climate and the investors’ confidence that the advance of the Indonesian economy is sustainable led to the rupiah appreciation, the Indonesian currency, by 5% against the dollar, thus having the third best performance among Asian currencies. The reference index for Jakarta Composite stock index increased between August 2009-August 2010, with 20%.11