Indonesia's Economy: An Overview

The year 2007 witnessed a remarkable achievement of the Indonesian economy most notably in key areas despite mounting external pressures. For the first time since the Asian financial crisis hit the region in 1997 – 1998, the economy grew at a rapid level of above 6%, with macroeconomic stability kept in check.

Much acceleration of the economic growth was accounted for buoyant demand for both private consumption and investment. Private consumption escalated on the back of rising purchasing power. At the same time, investment growth was supported by improved investor perceptions, higher returns on investment and adequate availability of financing from banks and financial markets in general. In 2007, investment expanded by 9.2%, a considerable improvement over the 2.5% growth in 2006. Accelerated investment growth was driven mainly by the 10.1% rise in non-construction investment, while the construction investment was stable with growth at 8.6%.

The improved equilibrium in economic growth, the balance of payments surplus and robust international reserves at USD56.9 billion (equivalent to 5.7 months of imports and servicing of official debt) at end-2007 have contributed greatly to the stability in the rupiah, particularly in the medium and long term. At the end of 2007, the average value of the rupiah stood at Rp9,140/US$, representing a modest appreciation from the 2006 level of Rp9,167/US$. The stability in the rupiah provided vital support to the series of measures for achieving the national inflation target in 2007. At the end of 2007, the annual measure of CPI inflation reached 6.59%, little changed from 2006 and within the inflation targeting range established by the Government and Bank Indonesia. These stable macroeconomic conditions paved the way for Bank Indonesia to announce steady reductions in the reference interest rate. At the end of 2007, the BI Rate stood at 8% p.a., having eased 175 basis points from the end-2006 level of 9.75% p.a.

The upsurge in economic growth also improved the welfare of the population. This was indicated in per capita income that reached US$1,946 in 2007, up about 17% over 2006. In addition, the economic growth generated employment for approximately 4.5 million new entrants to the workforce, bringing open unemployment down from 10.3% in August 2006 to 9.1% in August 2007.

Source: Bank Indonesia’s Annual Report 2007

For in-depth information on Indonesian Economy please click here

Doing Business  

Indonesia is one of the most attractive economies in Asia that makes it as a favorite destination for trade and investment. Each year hundreds of foreign traders and companies from all over the world come to Indonesia to expand their businesses.

For those wishing to know more on doing business in Indonesia, you are welcome to visit our business information (click) to explore the range of information relating to business opportunities.