Indonesia navigates a critical moment for growth | DW News

Summary

This discussion explores the current state of Indonesia's economy amidst global uncertainty, balancing trade relationships with China, the EU, and the US. Krishna Gupta highlights Indonesia's strengths, such as its young workforce and steady growth, as well as challenges like resource dependency, regulatory issues, and inflation. The conversation delves into the impacts of trade deals, foreign investments, and the government's pursuit of 8% growth by the decade's end. Despite criticisms of certain populist policies, like free school meals, Indonesia's leadership strives to navigate complex international dynamics while fostering domestic growth.

Takeaways

• 😀 Indonesia's economy is currently growing at around 5%, with potential for improvement, but faces global uncertainty as a significant challenge.
• 😀 China is a major trading partner for Indonesia, accounting for 27% of its total trade, and Chinese companies are aggressively investing in Indonesia's business sector.
• 😀 Indonesia is seeking to improve its institutional quality to comply with the EU's strict trade regulations, which is seen as an opportunity for long-term growth.
• 😀 Indonesia faces challenges in balancing trade relationships, especially with China, as Chinese firms are accused of flooding the market with cheap goods, putting pressure on local industries.
• 😀 The US-China trade war has created new opportunities for Southeast Asian nations, including Indonesia, to benefit from trade diversification, but Indonesia faces complexities due to US tariffs.
• 😀 President Joko Widodo (PBO) has set an ambitious 8% GDP growth target by the end of the decade, but experts are skeptical about reaching this goal without significant debt increase.
• 😀 The Indonesian government has imposed austerity measures, including a $19 billion budget cut, which negatively impacts infrastructure projects, services, and employment levels, though it's aimed at reassuring investors.
• 😀 A key domestic program, the free school meals initiative, faces criticism for inefficiency and misdirected resources, with concerns over its impact on the poorest populations and whether it's meeting nutritional needs.
• 😀 Indonesia’s resource-rich economy struggles with the 'resource curse,' where reliance on natural resources leads to complacency, hindering innovation and the development of more complex industries.
• 😀 Despite its challenges, Indonesia is strategically positioned to balance relationships with major powers like the US, EU, and China. The country's leadership, particularly President PBO, is skilled at managing these international relations.

Q & A

What is the main challenge facing Indonesia's economy at the moment?

The main challenge is global uncertainty, which is affecting trade and growth. Indonesia is also grappling with issues like trade disputes, particularly around nickel and palm oil, as well as the global shift in supply chains.

How is Indonesia's current economic growth rate performing?

Indonesia's economy is growing at around 5%, although there was a slight dip in the first quarter (4.87%) before a rebound in the second quarter (5.12%). Despite some challenges, the country is still seeing positive growth.

What are Indonesia's biggest strengths in its economic development?

Indonesia's strengths include a young, productive labor force, a government eager to achieve higher growth rates, and a large and diverse economy that is a good destination for diversifying trade beyond China.

Why has Indonesia's trade deal with the EU taken so long to finalize?

The delay is due to the EU's strict standards, which are difficult for developing countries like Indonesia to meet. However, the deal was eventually pushed through due to the global need for new trading partners and Indonesia’s aspiration to join the OECD.

What is the impact of China’s influence on Indonesia's nickel market?

China controls about three-quarters of Indonesia's nickel processing, which is critical for electric vehicle batteries. While this gives China significant leverage in the country, Indonesia is working to diversify its foreign direct investment (FDI) sources to ensure broader benefits from its resources.

Is the influx of cheap Chinese goods a serious issue in Indonesia?

Yes, it is a serious concern. There are complaints about Chinese companies flooding the market with cheap goods, which has led to the Indonesian government revising its trade regulations multiple times to manage the situation.

How has the U.S. trade policy affected Indonesia?

The U.S. tariffs, introduced under the Trump administration, have both challenged and provided new opportunities for Indonesia. While Indonesia did not benefit much from the initial trade war, later adjustments have led to a more favorable environment for investment, as companies look for alternatives to China.

Can Indonesia balance its relationships with the U.S., EU, and China without being squeezed?

Indonesia is trying to maintain a neutral position, balancing its relationships with these three major powers. The government is skilled in diplomacy, which helps to manage these relationships, but the shifting global dynamics may pose challenges in the future.

What is the Indonesian government's growth target for the end of the decade, and how realistic is it?

President Joko Widodo's administration aims for 8% growth by the end of the decade. While ambitious, this target faces skepticism due to historical growth challenges and the potential economic risks of significantly increasing government debt.

How has austerity affected Indonesia's economy and its people?

Austerity measures, including cuts to the government budget, have slowed economic growth, particularly in infrastructure projects. While they reassure investors, the cuts have also led to higher unemployment and slower progress in public services.