Economy of Indonesia

The economy of Indonesia is a mixed economy with dirigiste characteristics, and it is one of the emerging market economies in the world and the largest in Southeast Asia. As an upper-middle income country and member of the G20, Indonesia is classified as a newly industrialized country. Estimated at over 21 quadrillion rupiah in 2023, it is the 16th largest economy in the world by nominal GDP and the 7th largest in terms of GDP (PPP). Indonesia's internet economy reached US$77 billion in 2022, and is expected to cross the US$130 billion mark by 2025. Indonesia depends on the domestic market and government budget spending and its ownership of state-owned enterprises. The administration of prices of a range of basic goods also plays a significant role in Indonesia's market economy. Indonesia is predicted to be the 4th largest economy in the world by 2045. Joko Widodo has stated that his cabinet's calculations showed that by 2045, Indonesia will have a population of 309 million people. By Widodo's estimate, there would be economic growth of 5âˆ’6% and GDP of US$9.1 trillion. Indonesia's income per capita is expected to reach US$29,000.

Top Sectors in Indonesia

Agriculture in Indonesia

Agriculture is a key sector which contributed to 14.43% of GDP. Currently, there are around 30% of the land area used for agriculture and employed about 49 million people (41% of the total workforce). Primary agriculture commodities include rice, cassava (tapioca), peanuts, natural rubber, cocoa, coffee, palm oil, copra; poultry, beef, pork, and eggs. Palm oil production is vital to the economy as Indonesia is the world's biggest producer and consumer of the commodity, providing about half of the world's supply. Plantations in the country stretch across 6 million hectares as of 2007, with a replanting plan set for an additional 4.7 million to boost productivity in 2017. There are a number of negative social and environmental impacts of palm oil production in Southeast Asia.

Renewable Energy in Indonesia

Indonesia has significant potential for developing renewable energy; however, the country continues to rely heavily on the use of fossil fuels in domestic electricity production. Continued investment in and reliance on fossil fuels, such as coal, may result in fossil fuels becoming stranded assets, leading to significant investments lost that the country could have received from renewable energy investors.

Industrial Automation And Control in Indonesia

Indonesia sold 7.6 million motorcycles, which were mainly produced in the country with almost 100% local components. Honda led the market with a 50.95% market share, followed by Yamaha with 41.37%. In 2011, the retail car sales total was 888,335 units, a 19.26% increase from last year. Toyota dominated the domestic car market (35.34%), followed by Daihatsu and Mitsubishi with 15.44% and 14.56%, respectively. Since 2011, some local carmakers have introduced some Indonesian national cars which can be categorized as Low-Cost Green Car (LCGC). In 2012, sales increased significantly by 24%, making it the first time that there were more than one million units in automobile sales.

Indonesia - Key Economic Indicators

Exports and Imports

Indonesia is a major exporter of commodities, including coal, palm oil, and natural gas. In 2023, the country's exports were valued at approximately $230 billion. Imports, mainly consisting of machinery, chemicals, and fuels, totaled around $180 billion, reflecting a positive trade balance.

Infrastructure

Indonesia has been investing heavily in infrastructure development to support economic growth. Significant projects include the Trans-Java Toll Road, the Jakarta Mass Rapid Transit system, and various new airports and seaports. The government allocated about $30 billion in 2023 for infrastructure projects.

Balance of Trade

Indonesia's balance of trade has been generally positive in recent years, with exports consistently outpacing imports. In 2023, the trade surplus was approximately $50 billion, driven by strong global demand for its natural resources.

Fiscal Policy

The Indonesian government employs a mix of spending and taxation policies to manage economic growth. In 2023, the fiscal deficit was about 3% of GDP, with significant spending directed towards infrastructure, education, and healthcare. Tax reforms are also ongoing to improve compliance and broaden the tax base.

Monetary Policy

Bank Indonesia, the central bank, plays a crucial role in maintaining economic stability. In 2023, it kept the benchmark interest rate at 5.25% to control inflation, which was around 3.5%, and support economic growth. The central bank also intervenes in the foreign exchange market to stabilize the Indonesian Rupiah.

Trade Agreements

Indonesia is a member of various regional and international trade agreements, including the Association of Southeast Asian Nations (ASEAN) Free Trade Area and the Regional Comprehensive Economic Partnership (RCEP). These agreements help facilitate trade and investment flows, enhancing economic cooperation with partner countries.

Environmental Regulations

Indonesia faces significant environmental challenges, including deforestation and pollution. The government has implemented various regulations to address these issues, such as the moratorium on new palm oil plantations and stricter emission standards for vehicles and industries. Investments in renewable energy and sustainable practices are also being encouraged to mitigate environmental impact.

Tax System in Indonesia

Capital gains tax (e.g., 15% rate): This is a tax on profits earned from selling investments like stocks.
Corporate tax rate: This is the tax levied on a company's profits (e.g., 25% rate).
Sales tax (often around 5-10%): This is a tax applied to the purchase of goods and services.
Property tax (based on property value): This is a tax levied on real estate ownership.
Payroll tax (e.g., 7.5%): This is a tax on wages and salaries, often used to fund social security programs.
Tax deductions and credits: These are loopholes or incentives that reduce the amount of tax owed.
Tax compliance: This refers to the efficiency of a country's tax collection system.
Tax burden: This is the overall amount of taxes paid by individuals and businesses, expressed as a percentage of GDP (Gross Domestic Product).

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