Perspectives of Indonesia to Become Economic Powerhouse in Asia by 2030 - Essay Example

? Indonesia as an Economic Powerhouse in Asia by 2030: Will It Become a Reality Executive Summary It is the aim of this paper to analyze the economic status of Indonesia and deduce its potential to become an economic powerhouse in Asia by 2030. In doing this, there was a research on Indonesian’s economy which analyzed financial reports and conducted interviews on economic professionals based in Indonesia. There was a random selection to come up with an original sample of 20 economic professionals based in Indonesia. However, only 12 had a master degree in economics and aged 40 years and above. The research used non-experimental research design and mixed research methods. The research established that Indonesia is a very rich country with vast resources, has a stable economy, it is one of the emerging economies in G-20, adopts effective economic policies, attracts foreign investment, and the government has a commitment to ensure sustainable economic growth. However, there are numerous economic challenges hurting the Indonesian economy. There is a recommendation for the government continue to address these challenges with a view of attaining its economic goals. Table of Contents Table of Contents 3 Introduction 4 Methodology 7 Discussion 8 Conclusion 14 References 15 Introduction Indonesia is an independent republic in Southeast Asia. Indeed, Indonesia has about 17,000 islands and a population of more than 238 million people, which forms a good foundation for its economy (Ananta et al, 2011). It is an internationally recognized nation where it ranks fourth in the most populous nations in the world and the second richest country in the world. Notably, Indonesia has the largest economy in Southeast Asia (Belford, 2010) and the 16th largest economy in the world (Oberman et al, 2012). It is also a member of the G-20 major economies in the world and is one of the industrialized and emerging economies in the world (Oberman et al, 2012). The capital city of Indonesia is Jakarta, which is an industrious city. Most assuredly, Indonesia is a very rich country with a wide range of resources, a productive community, and large population. Indeed, Indonesia has many natural resources in earth oil, spice, and agriculture (Ananta et al, 2011). In this context, economy refers to the state of a country with respect to natural resources, production, and consumption of goods and services and the supply of money. In Indonesia, the economy or financial value is different and never balances. Today, Indonesia is one of the emerging powerhouses in Asia with a large population that offers labor and market as well as a wealth of natural resources (Wie & Thee, 2012). Indeed, its population enhances labor productivity improvements, which boost its economy. Notably, the domestic consumption and productivity growth in Indonesia offers a good combination for economic growth. This makes Indonesia stand out in the world as many nations lack this fundamental combination. In addition, Indonesia’s manufacturing industry, chemical industries, automotive, agricultural, and electronic industry enjoy a robust growth thus boosting the overall economic growth of the Southeast Asia nation (Ananta et al, 2011). In fact, after China, Indonesian economy is the fastest growing economy among the G-20 members with an economic growth rate of 6.3 percent in 2012 (Oberman et al, 2012). The country equally boasts of Gross Domestic Product of about $1 trillion at 6.2 % (Asian Development Bank, 2013). Moreover, the government of Indonesia plays a major role in enhancing a market-based economy where the state owns about 141 enterprises and sets prices for various basic goods like electricity, fuel, and rice (Michigan State University, 2013). This ensures that unscrupulous investors do not destabilize the country’s economy. Indonesia participates in global trade where it sells unripe oil to big oil companies like Shell, Castro, and Hexon at competitive prices that guarantee huge returns to the nation. More so, the nation sells raw oil and milepost to large local companies, which guarantee domestic consumption. Indeed, many Indonesians are in the business of mileposts because it is the greatest money earner in the nation. The government seeks to establish a better business environment in Indonesia where it started eliminating regulatory obstacles to economic activity in the mid-1980s (Wie & Thee, 2012). As such, the Indonesian economy stands out as one of the best economies in Asia and will soon become an economic powerhouse in this region if its addresses the challenges that hinder its economic growth. In addition, many large foreign companies like Coca-Cola have invested in the country in the recent past. However, the Indonesian economy has never been consistent and varies from time to time. Indeed, the Indonesian economy is prone to inefficient legal and investment regimes, increasing corruption, weak judicial system, political interferences, government restrictions, natural calamities, poor infrastructure, and discouragement in the dynamic expansion of the private economy (The Heritage Foundation, 2013). Notably, in 2012, the government reintroduced trade and investment barriers that limited the ownership of banks and mines and export taxes (The Heritage Foundation, 2013). More so, there is significant poverty, unequal distribution of resources, unemployment, and corruption, labor unrest over wages, complex regulatory environment, and inadequate infrastructure in Indonesia, which hinders economic growth. Moreover, the nation is also prone to global economic challenges like high fuel prices. In addition, political interferences where conservatives maneuvered economic modernizers to the sidelines also limit economic growth in Indonesia. Nevertheless, the Indonesian president Susilo Bambang Yudhoyono is trying to stabilize the situation by reducing political interference and eliminating corruption. However, the challenge of infrastructure where more than half of Indonesia’s population lives in urban areas and there is increased urbanization demeans economic growth in this nation. As such, the government has a major task of improving the level, quality, and efficiency of infrastructure investment with a view of boosting the economy. Indeed, this will guarantee efficient service delivery, transportation of goods and services and resultant economic benefits (World Bank, 2013). Ideally, the government of Indonesia is already trying to address this problem as well initiating different reforms that will solve structural challenges and improve market competitiveness. Such reforms are in the financial sector and include tax and customs reforms, capital market development, the use of Treasury bills, and government supervision. With this, the government is sure of becoming the world’s seventh largest economy by 2030, which will put it ahead of the developed nations like Germany and the United Kingdom (Oberman et al, 2012). Actually, the Indonesian president has been explaining the country’s rise as Asia’s new economic powerhouse and the increased avenues for domestic companies to raise foreign capital. Indeed, the government of Indonesia aims at a growth rate of 6.8% and an increase in gross domestic product by 6.4 % this year despite the slowdown in the global economy growth (Asian Development Bank, 2013). Methodology The purpose of this research is to evaluate the economic status of Indonesia and establish whether Indonesia has a potential to become an economic powerhouse in Asia by 2030. Indonesia has the largest economy in Southeast Asia and the 16th largest economy in the world. It also has a wealth of natural resources and it the second emerging economy among the G-20 economies. Moreover, Indonesia has a potential of becoming the world’s seventh largest economy by 2030.This paper includes a review of the research methods, appropriate designs, and conclusive discussion of the population and sample used to achieve the purpose of this research. In addition, the paper will also analyze the results of the research and draw a conclusion on the reality of having Indonesia as an economic powerhouse in Asia by 2030. The research adopts a mixed research method because some of the expected results are quantifiable while others depict quality. It also uses a non-experimental research design because the study does not rely in experimental results but calculated figures, experience, external factors, developmental aspects, and global economic trends. As such, the proposed research design and research method are appropriate for this study, as they will address all the economic aspects that define the economic potential of Indonesia. This paper will thus establish the potential of Indonesia to become an economic powerhouse in Asia by 2030. In this study, there were interviews on economic professionals based in Indonesia. The research adopted random sampling to establish an original sample of 20 economic professionals who at least have a master’s degree and aged above 40 years. However, only 12 economic professionals participated in the study with four refusing to participate, two lacking a master’s degree, and two falling below 40 years. All the participants on the study were informed and they gave a voluntary consent to participate. Questionnaires were used to collect data related to Indonesian economic history, the present economic status, factors affecting the economy, the foreseeable economic growth, and the present and foreseeable challenges hindering economic growth in Indonesia. The research also relied on the McKinsey Global Institute 2012 report. The reliability of the study was 74% as the participants know all economic aspects, was residents of Indonesia, and could thus give reliable information to the study. Discussion All the participants confirmed that Indonesia is a country with vast resources that are not only attract local demand but also fetch a lot of money from exports. They identified palm oil, timber, copper and other commodities with a great demand in China. Indeed, Indonesia is the biggest producer and exporter of palm oil and its other exports include cocoa, coal, and rubber (Paramaditha & Rizki, 2013). The country also has numerous mineral deposits that are useful locally and attract foreign demand. These mineral deposits include gold, copper, silver, bauxite, and tin (International Monetary Fund, 2013). Ideally, a country with such wealth of natural resources places itself in an advantaged position for economic growth since natural resources are the most fundamental aspects of the economy (Bhasin & Venkataramany, 2010). As such, Indonesia has a great potential to become an economic powerhouse in Asia by 2030 while relying on its vast natural resources. Indeed, six participants asserted that the natural resources increases the country’s independence thus lowering the country’s debt, increases foreign earnings, and increases the citizen’s optimism on the economy (International Monetary Fund, 2013). This has a great positive effect on the economy, which boosts the country’s potential to become an economic powerhouse in Asia by 2030. More so, the country enjoys major transition in political and economic sectors where Indonesia has a stable political environment (Consulate General of the Republic of Indonesia, 2013). Indeed, eight participants felt that the administration of President Susilo Bambang Yudhoyono has stabilized the nation and achieved much in reducing corruption and international debt (Belford, 2010). They lauded the efforts of the government to ensure continued economic growth with little political interference. Indeed, today, Indonesia boasts of magnificent growth in foreign investment, trade, and industry due to the government’s commitment on the economy (International Monetary Fund, 2013). Ideally, this guarantees economic growth and a potential to rise to higher levels in the recent future. Indeed, the participants reckon that the Indonesian government has put emphasis on certain economic areas like investment, agriculture, trade, macroeconomic stability, and energy, which enables Indonesia to address various global economic crises and sustain its economic growth (Consulate General of the Republic of Indonesia, 2013). This places the country is a strategic position to continue with its economic growth to become an economic powerhouse in Asia by 2030. The research also relied on the McKinsey Global Institute September 2012 report, which addressed the actual economic situation in Indonesia. According to the report, the Indonesian economy will attract about 90 million additional people with purchasing power by 2030 making it the best in Asia (Nayak, 2012). The new purchasing power will enhance economic growth in the country to the disadvantage of other nations. Indeed, the report confirms that the new consumption will be the third strongest in the global economy from china and India thus making Indonesia an economic powerhouse in Asia by 2030. The report equally asserts that the new consumer class, the country's young population, and the rapid urbanization especially from the smaller cities will boost the Indonesian $850 billion economy to a higher value (Nayak, 2012). Notably, urbanization around big cities as Jakarta and Surabaya form the economic powerhouses of Indonesia today. However, this situation will change and smaller cities like Pekanbaru and Makassar will be the economic strongholds of Indonesia by 2030 (Bhasin & Venkataramany, 2010) In fact, the report approximates that 86 percent of Gross Domestic Product in Indonesia will emanate from the urban areas by 2030 (Nayak, 2012). Notably, the continued economic status will ensure that the economy of Indonesia moves from the 16th position in the global economy to an economic powerhouse in Asia. More so, the report recognizes that the country has the most vibrant and reliable workforce. It asserts that in the next 18 years, about 70 % of the country’s population will attain the Indonesian working age of between 15 and 64 years which is a great economic advantage (Nayak, 2012). Indeed, most Western European economies lack this labor force advantage and hence Indonesia has a potential of overtaking them to become the economic powerhouse in Asia after 18 years. Assuredly, static and decreased labor force characterizes the work force in other economies and thus Indonesia has a competitive advantage in this context. In addition, the Indonesian government has a commitment to improve foreign investment performance as well as establishing a sustainable presence in the global market. As such, the government has been signing international trade agreements with various investors like the agreement with aircraft manufactures Boeing signed during the Indonesia Investment Day (Slomski, 2013). The agreement seeks to enhance air transport that is very necessary in the country, commercial aviation safety and boost aerospace industry development in Indonesia. This agreement has been of great significance to both parties especially to Indonesia whose economy relies directly on air transport (International Monetary Fund, 2013). This will be of great help in ensuring that Indonesia becomes an economic powerhouse in Asia by 2030. Moreover, Pertamina, Indonesia’s government owned Energy Company also signed a joint statement of cooperation with Celanese Corp that seeks to utilize coal resources in Indonesia for purposes of develop fuel ethanol projects in the country (Slomski, 2013). This is a significant economic strategy as it ensures the country has sustainable food sources thus enhancing its economy. Additionally, ten participants establish that Indonesia has recovered from the 1997 economic crisis in Asia to continue enjoying foreign direct investment (Belford, 2010). They recognize that from mid-2009, there has been an increase in foreign investors coming to Indonesia, which generates a lot of liquidity for the nation. Indeed, the continued pro-growth policy and the improved macroeconomic environment in Indonesia make the nation a foreign investment hub. Indeed, the nation motivates foreign investors to venture in agribusiness, manufacturing, electronics, infrastructure, and fishing industry with added competitive advantages (Oberman et al, 2012). As a result, Indonesia boasts of many Canadian companies who invest in the above industries. At the same time, major brands like Mizuno and New Balance are now producing part of their products in Indonesia due to increasing costs of production in other countries. Such companies employs 640,000 people and as well as attracting more than $1.8 billion foreign income (Belford, 2010). This enhances the economy of the nation, its continued engagement with foreign companies ensures a sustainable economic growth, and increases the potential to become an economic powerhouse in Asia by 2030. More so, the participants agree that Indonesia has a huge consumer market that constitutes a great proportion of the country’s G.D.P, which ensures continued growth in Indonesia. Additionally, the country’s young population, government stimulus, and the government’s policy of direct cash transfers to the poor increases the purchasing power of the citizens thus enabling them to contribute in the economic growth (Belford, 2010). With such economic policies, Indonesia will attain its economic targets. The country also boasts of a hard-working, efficient, friendly, and caring workforce, which enables them to work anywhere thus generating domestic and foreign income to the nation (Consulate General of the Republic of Indonesia, 2013). All participants appreciated the government’s macroeconomic policy as well as the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development launched by the president in 2011as a way of establishing and sustaining economic growth in the country (Coordinating Ministry for Economic Affairs, 2011). Indeed, the Master Plan ensured huge capital investment in infrastructure development that includes building new roads, manufacturing industries, and hydroelectric and solar power plants. This boosts transportation, power supply, employment, and increases production in the country, which motivates economic growth. These economic measures will enable Indonesia to become one of the strongest emerging markets in Asia to become an economic powerhouse by 2030. Nevertheless, three participants established that there are serious economic challenges facing Indonesia that would prevent it from becoming an economic powerhouse in Asia by 2030. These challenges include low productivity, power blackouts, unequal distribution of resources, and increasing consumer demand from the increasing population (Nayak, 2012). Indeed, the McKinsey Global Institute September 2012 report equally notes that the nation needs to enhance its labor productivity to 4.6 percent and address the other challenges for it to attain its economic targets. Moreover, the existence of confusing regulations and labor laws that limit the sacking of employees discourage the investors. In addition, the lack of infrastructure development over a long period necessitates for air transport in Indonesia and adversely affects the economy (Bhasin & Venkataramany, 2010). At the same time, all participants recognized that there is national fear on the inflation rates in the country. Indeed, thousands of demonstrators took to the streets of Jakarta in protest of the planned increase on fuel prices as well as demanding for higher wages (Paramaditha & Rizki, 2013). As a result, the increased labor unrests and non-transparent and arbitrary tax administration are discouraging foreign investors and thus hurting the economy (Michigan State University, 2013). In fact, as the country heads to elections in 2014, the pressure is likely to rise as the government seeks to arrest the inflation. Two participants were also concerned with the fuel price subsidies, demeaning private consumption and reduced foreign investments noting that they would decelerate the economic growth in the country (Paramaditha & Rizki, 2013). However, the situation is likely to change when the government raises the income threshold at which income tax is payable thus boosting private consumption, increasing the average minimum wages, and improving employment levels in the country (Asian Development Bank, 2013). Moreover, there is a decline coal and other commodity prices, which undermine the mining industry and other related industries thus hurting the economy. These challenges limit the potential of Indonesia to become an economic powerhouse in Asia by 2030. However, the government is effectively trying to address these challenges. Indeed, the government changed the rules that govern the acquisition of land for infrastructure thus addressing the infrastructure challenge (International Monetary Fund, 2013). More so, the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development effectively solves this challenge (Coordinating Ministry for Economic Affairs, 2011). As such, with all the positive economic measures and potential that Indonesia possesses, I feel that has the capacity to become an economic powerhouse in Asia by 2030. Conclusion In conclusion, the research confirms Indonesia as a very rich country with a wide range of resources. The country ranks fourth in the most populous nations in the world and the second richest country in the world. Notably, Indonesia has the largest economy in Southeast Asia and the 16th largest economy in the world. It is also a member of the G-20 major economies in the world and is one of the industrialized and emerging economies in the world. The country has huge foreign investment and is a business hub for many foreign investors. It also adopts effective economic policies as well as signing international trade agreements that boost its economy. Moreover, it has a domestic consumption and political stability that enhances economic growth in the country. However, the country equally faces numerous economic challenges that hurt its economy. Nevertheless, the positive side of its economy supersedes the challengers and thus Indonesia has a potential to become an economic powerhouse in Asia by 2030. References Ananta, A., Soekarni, M., & Arifin, S. (2011). The Indonesian Economy: Entering a New Era. Singapore: Institute of Southeast Asian, 2011. Asian Development Bank. (2013). Economy. 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