Indonesia, the largest archipelago country in the world and the most populous member of the Organisation of Islamic Cooperation (OIC) and the Association of South East Asian Nations (ASEAN) became a trillion-dollar economy at the end of 2017, the first country in both ASEAN and the OIC to have entered the trillion-dollar economy club. According to the International Monetary Fund (IMF), Indonesia’s gross domestic product (GDP) was an estimated $1.004 trillion in 2017, the achievement being an opportunity to reflect on what has already been accomplished and what more can be done in the future.
Over the last two decades from 1997 to 2017, Indonesia has maintained an average 4.2 percent GDP growth annually, only behind Turkey, India and China in the G20’s major economies. This consistent performance has helped the country cross the trillion-dollar threshold despite a slowdown in exports and curbs on spending. Exports and domestic spending and consumption have been two of Indonesia’s main GDP growth contributors. Other OIC-G20 member countries such as Turkey and Saudi Arabia, whose GDP per capita is much higher than Indonesia’s, are in the fray to enter this elite club in the coming years. The IMF estimates that Turkey will enter the trillion-dollar economy club in 2020.
New World Order
While the global economy is still recovering from the slowdown, the Indonesian economy has managed to grow well over 5 percent during the last four years thanks to President Joko Widodo’s economic reforms, which have curtailed a lot of bureaucratic red-tape that hindered investments. The government has also liberalized the various central and regional regulations that critics see as inhibiting foreign direct investments (FDI) in the country. Resilient investment growth and healthy household spending are expected to fuel a modest acceleration in the coming years. Major financial institutions forecast Indonesia’s GDP expanding around 5.4 percent in 2018 and 2019. Indonesia’s total exports reached $168.73 billion in 2017, while imports reached $156.89 billion. Overall, Indonesia’s trade balance showed an $11.84 billion surplus in 2017, the highest trade surplus the country has had over the past five years. Exports are the one segment where Indonesia has lacked in recent years. It is not only behind Singapore, Thailand and Malaysia, but even Vietnam now exports more than Indonesia.
Indonesia is the only major OIC-member country that has been immune from any major dispute. It has good relationships with both the U.S. and emerging world power China as well as with Muslim and non-Muslim countries. It is the only OIC-member country that has significant clout in the Asia-Pacific Economic Cooperation (APEC) and ASEAN Free Trade Area (AFTA) at the same time, and where it ranked second and first, respectively, in terms of population size. It is also the only major OIC country other than Turkey and Egypt that controls major sea trade crossings, with goods from and to Australia, China and India, or in larger context, from Asia to Europe and Africa, passing through its territorial waters every year. These advantages have helped Indonesia become a more influential regional power and enhance its economic and political clout.
Over the past two years, the Indonesian government has slashed many subsidies that, as the administration believed, were either unproductive or misplaced. The government has increased the infrastructure development fund, diverting previously earmarked funds for subsidies. Infrastructure investment funding is also accelerated by the FDI and Chinese loans. New bridges, toll roads, harbors, airports and other infrastructures projects taking shape in a short period of time are the testaments of Indonesia’s economic growth. As the case in many emerging economies, while these reforms and its multiplier effects managed to get GDP growth floating above 5 percent and big infrastructure projects are being realized, it is not trickling down well to bring fair, positive results to the poorest in society. Many Indonesians feel their living costs are becoming excruciating, and what was predicted to be a short-term decrease has now turned into prolonged hardship.
Indonesia is projected to have a population of more than 300 million by 2025, with more than one-third below 30 years old, according to Indonesian Statistical Central Bureau (BPS). This is not only a great potential because it means there will be about 100 million new consumers with active buying power that would drive up domestic consumption, it also offers tremendous investment opportunities.
To put it into perspective, even with infrastructure that is still in the development stage, a significantly commodity-driven export economy, an unfavorable international market, largely untapped regional potential and imbalanced economic growth planning, Indonesia is still managing to grow its economy above 5 percent annually. If favorable conditions return, there could be a successful transition into a service-based economy, and if there is a more competent administration in place, then double-digit annual GDP growth would be possible. This is economic potential that investors and like-minded people cannot miss.
This has yet to mention Indonesia’s potential within the OIC. Islamic learning is becoming more common and people’s growing interest in religious affairs in their daily lives can be considered a positive development in the socio-cultural domain. As such, Indonesia would really lead the OIC not only in terms of economic and demographic size, but also in terms of providing a guiding path. Against the existing global trends of religiosity becoming more apparent year-by-year and youth rebellions becoming more extreme around the world, Indonesia is being balanced remarkably by its youth’s increasing religiosity. Two decades ago, mosques in Indonesia barely saw any young people and finding young girls wearing headscarves was quite rare. Now, young people are filling mosques and churches while one can find young girls in headscarves on every corner of the Muslim parts of the country. In Indonesia, modernity is going hand-in-hand with religious belief. Indonesia has the potential to become a model for the Muslim world.
Thus, with all its landmark accomplishments in the socio-economic and political domains, Indonesia is a practical example of a smooth transition from dictatorship to democracy, and definitely a model for sustainable economic development. It also has a major role to play in ASEAN and the politics of the OIC member countries where it can strategically align itself with other contemporary democracies in the Muslim world such as Turkey, Tunisia, Pakistan and Nigeria and help the troubled Arab Spring countries with its own successful experiences of democratic transition and governance. This constructive role, if Indonesia takes it with due caution, would be historic, not only for troubled Muslim countries, but also for developing economies at large. By doing so, it can assume the role of leadership while positively impacting the course of world affairs. In the current geo-political scenario, this most-populous Muslim country can justifiably discharge its obligations by playing a more proactive role. Now, as Indonesia has major economic and political clout, its constructive path-breaking role in the Arab Spring countries and in emerging economies can prove to be vital and decisive factors in shaping the new world order while emerging as a reliever to the parts of the Arab and Muslim world in distress.