DEVELOPMENT ACHIEVEMENT : ECONOMIC GROWTH AND STATE FINANCE
Indonesia is the largest economy in Southeast Asia growing at a sustainable
long-term average annual rate of 6.8% annually during the first 25-Year Long
-Term Development Program (PJP I - 1969/1970-1993/94). This economic growth
was accompanied by the decline in the population growth rate. Thus, the
standard of living of the Indonesian people continued to rise in real terms.
The per capita income rose from US$70 in 1969 to around US$770 by the end of
PJP I. There were not many nations in the world, especially with a large
population, could achieve the same results.
The World Bank has praised Indonesia's leaders for their prudent and
effective management of the country's economy.
Indonesia operates a mixed economy, in which there are many state
enterprises but the Government has made it clear for some years that
economic leadership and resources must come substantially from the private
sector and reforms have been aimed at encouraging and facilitating this.
The economy is governed by strict monetary policies administered through the
Economic Stabilization Council and the Central Bank, which is responsible
for maintaining the fair market value of the Rupiah bank-notes. Government
budgets are balanced each year and spending is kept in line with available
Indonesia seeks balanced economic development for all regions and social
classes and although there are many investment opportunities in the more
densely populated areas with large towns and cities. The Government is
emphasizing the need to develop other regions, particularly in eastern
Indonesia and special incentives are available to those willing to commit
their capital to remoter regions. At the same time, the Government is
spending its own resources not only on obvious infrastructural development
but also on provision of working capital to villagers who want to develop
businesses but lack funds (Inpres Desa tertinggal - Project aid for less
developed villages by virtue of Presidential Instruction, 1993).
In the meantime, the average growth of industry was 12.4% annually, that of
agriculture 3.6% annually, banking and other financial institutions 13.5%,
electric and gas 13.3%, construction 11.9%, transportation and communication
9.8% and trading, hotel and restaurants 7.9% annually.
GROSS DOMESTIC PRODUCT
The economic growth sustained by a firm economic stability has also spurred
the transformation of the Indonesian economic structure into a stronger and
more balanced position. Indonesia has traditionally been an agricultural
country and at independence in 1945 industry accounted for only 9% of Gross
Domestic Product (GDP) while today it has soared to 22.3% (1993). Leading
industries today are beverages, textiles, cement, constructions, fertilizer,
light manufacturing, wood processing, minerals and petroleum production and
processing, aircraft, shipbuilding and tourism.
Indonesia's economic dependence on oil has been gradually reduced. When in
1981 the contribution of oil and gas sector in the national product reached
24%, in 1993 it dropped to 10.8%.
Agriculture is the largest single economic sector employing 55% of the
workforce of 58.6 million. However, its proportional contribution to
national economic output is steadily declining and is currently no more than
20% of the GDP.
Concern about Indonesia's debt service ratio, currently running at 21.8% of
the GDP and also about inflation, which in 1993 was around 9.77%, resulted
in continuing foreign borrowing limits as well as measures to contain price
Domestic revenues are drawn mostly from taxes on non-oil-related sources and
oil-related income. During the first 25 Years Long-Term Development Program,
the composition of the domestic revenues showed Indonesia's decreasing
reliance on the oil and gas sector as a source of government revenues.
Domestic revenues received during the period of 1993-94 totaled Rp 52.3
trillion consisting of the oil-and-gas sector to the tune of Rp 12.5
trillion and non-oil and gas Rp 39.8 trillion, or a rise of 23.8% over that
of the year 1992/93.
Financing from the tax sector is a stable source, has a great potential and
in line with the spirit of development and the sense of justice. This is
indicated in the Guidelines of State Policy. Personal and corporate tax as a
key source amounted to Rp 15.3 trillion, or a rise of 28.2% over that of the
last period, while revenues from Value-Added amounted to Rp 12.3 trillion or
a rise of 14.6% over that of the last period.
Policies and measures adopted in the routine expenditure are aimed at
supporting the smooth running of development, both at central and regional
level. To this end, various efforts have been taken, among other things
through the enhancement of welfare and working motivation of the government
apparatus, provision of operational funds for various governmental
activities, and maintenance of state properties as well as of price
stability of a number of principal goods. The policies and measures taken
are designed to encourage government savings and to promote the use of
Since the beginning to the end of the First Long Term Development Program,
the total routine expenditure has risen 258 times. Indonesia's routine
expenditures of Rp. 149.7 million in 1968 jumped to Rp 38.8 trillion in
1993/94 fiscal year. Of this amount, almost one third of it, namely Rp 11.2
trillion , was allocated to personnel expenditures, both civil servants in
the central and regional governments. Rp 17.2 trillion was set aside for
external debt servicing.
The Trend of Product Aggregates and Per Capita Income at Current Market
| Gross Domestic Product(Billion Rps)||195,597.2|| 227,502.3|| 260,786.3|
| Gross National Product (Billion Rps)||185,981.7|| 216,603.0|| 246,339.5|
| Per Capita Gross National product (Rupiahs)||1,043,844.1 || 1,194,168.2 || 1,346,079.2|
| National Income (Billion Rps)||162,777.7||190,219.7 || 217,500.2|
| Per Capita Income (Rupiahs)||913,608.9 || 1,048,712.7 || 1,178,920.4|
| Gross Domestic Product without Petroleum, Gas,and their products (Billion Rps) || 166,518.4 || 192,956.4 || 227,972.6|
| Mid-Year population (in thousand) ||178,170|| 181,384|| 184,491|
In spite of the increasing funds for development activities, the funds from
foreign loans and assistance still represent a supplement to savings.
In acquiring foreign loans, the Government attempts to obtain soft loans as
far as possible in order to repay its debts in the following period. On the
other hand, it has also adopted many measures to increase the efficiency and
effectiveness of foreign loans and assistance allocated to development
projects listed in the priority list.
From 1968 through 1991, Indonesia received financial assistance from the
IGGI, a multilateral consortium chaired by the Netherlands, with member
nations including Australia, Austria, Belgium, Canada, France, Germany,
Indonesia, Italy, Japan, New Zealand, Spain, Switzerland, the United Kingdom
and the United States, as well as representatives of the International
Monetary Fund, the World Bank, the Asian Development Bank, the United
Nations Development Program, the International Finance Corporation and the
International Fund for Agricultural Development. Representatives from the
Organization for Economic Cooperation and Development, the European
Community, the United Nations Children's Fund, Denmark, Finland, and Norway
attended IGGI meetings as observers.
In March 1992, Indonesia rejected all further aid from the Netherlands,
which had imposed certain conditions for future financial assistance that
Indonesia deemed unreasonable. By requesting that the Netherlands no longer
convene any IGGI meetings, Indonesia has effectively dissolved the group.
Indonesia made a formal petition to the World Bank to establish a new
consortium of bilateral and multilateral lenders under the neutral
leadership of the Bank. The new Consultative Group on Indonesia (CGI),
chaired by the World Bank, had its inaugural meeting in July 1992 in Paris.
the total increase of the development funds comprising Government savings,
foreign loans and assistance amounted to Rp 23.9 billion or an increase by
14.2% annually during Repelita V. The amount of Rp 23.9 billion consisted of
Government savings which contributed as much as Rp 13.5 billion and foreign
loans amounting to Rp 10.4 billion.
The Trend of Government Savings and International Assistance 1989/90 -
1993/94 (in billion Rps)
| Description ||1989/90||1990/91 || 1991/92 || 1992/93 || 1993/94|
| Government Savings || 4,408.7 || 9,548.7 || 11,357.1 || 13,421.3 || 13,480.5|
| Foreign Loans || 9,429.3 || 9,904.6 || 10,409.1 || 10,715.7 || 10,371.9|
| Total Development Funds || 13,838.0 || 19,453.3 || 21,766.3 || 24,137.0 || 23,852.4|
Government spending is divided into two broad categories in the budget:
routine expenditures and development expenditures. Routine expenditures
include government wages, regional subsidies and debt service payments.
Development expenditures include education, housing, science and
The Government's budget prepared by the Department of Finance in
consultations with other departments, is submitted by the President to the
House of People's Representatives for approval every January for the fiscal
year beginning April 1. The central budget does not incorporate budgets for
the provincial, municipal, and local governments, nor state-owned financial
and non-financial institutions.
The government's chief philosophical guideline for public finance is the
adherence to the Trilogy of Development, which balances economic growth,
stability and equitable distribution of development gains. This conservative
approach demonstrates the government's commitment to fostering gradual
economic development and self-reliance throughout the archipelago.
Actual State Budget 1989/90 - 1993/94 (in billion rupiahs)
| Receipts/Expenditures || 1989/90 || 1990/91 || 1991/92 || 1992/93 || 1993/94|
| Domestic Revenues || 28,739.8 || 39,546.4 || 41,584.8|| 47,452.5 || 52,279.8|
| Routine Expenditures || 24,331.1 || 29,997.7 || 30,227.6 ||34,031.2 || 38,799.3|
| Government Savings || 4,408.7 || 9,548.7 || 11,357.2|| 13,421.3 || 13,480.5|
| Development Revenues || 9,429.3 || 9,904.6 || 10,409.1|| 10,715.7 || 10,371.9|
| Program Aid || 1,007.2 || 1,396.8 || 1,563.4 ||511.7 || 440.8|
| Project Aid || 8,422.1 || 8,507.8 || 8,845.7 ||10,204.0 || 9,931.1|
| Development Funds || 13,838.0 || 19,453.3 ||21,766.3 ||24,137.0 ||23,852.4|
| Development Expenditures ||13,834.3 || 19,452.0 || 21,764.2 ||24,134.8 || 25,661.1|
| Surplus (+) Deficit (-) ||+3.7 || +1.3 || +2.1 || +2.2 || (1,808.7)|
In the framework of enhancing the effectiveness and efficiency of projects
to promote development activities, new measures with regard to the
management budget remainders have been adopted. According to the new system,
the remainders of development budget are not longer added to the following
year's budget but are automatically regarded as being part of the year
The realization of development expenditures, including project assistance,
in 1993/94 totaled Rp 23,852.4 billion or a decrease by Rp 284.6 billion
compared with the preceding year's figure. According to the field of
activities, the agriculture and irrigation sector absorbed Rp 2,976.9
billion, communication and tourism Rp 5,191.6 billion, development
expenditures for education, youth, national culture and belief in the One
Supreme God Rp 3,263.9 billion, mines and energy Rp 3,499.9 billion and the
regional, town and village development sector Rp 3,632.5 billion.
BALANCE OF PAYMENTS
The country's balance of payments policy aims to anticipate various economic
constraints engulfing the world, not only in the sector of foreign trade and
investment but also in foreign loan.
Since the beginning to the end of the First Long-Term Development Program,
the total export value has risen 42 times, or an average of 15.9% annually.
Indonesia's export value of more than US$872 million in 1968 jumped to
US$36.5 billion in 1993/94. During the same period, the export value of
non-oil and gas has gone up even higher, namely to approximately 48 times or
an average increase of 16.5% annually.
At the end of the First Long-Term Development Program, non-oil and gas
export constituted 74% of the entire foreign exchange revenues. Some 63.4%
of this export consisted of manufactured goods. During the same period, the
small-scale industries contributed 10.3% of the total export of industrial
commodities. In Repelita V, the export value of small-scale industries grew
quite substantially, namely by an annual average of 22%.
The economic growth and rising demand for imported goods has put strains on
Indonesia’s balance of payments, which the Government has compensated for by
vigorous encouragement of exports, especially non-oil-and-gas. In 1993/94
exports continued to surge while imports were encouraged to dip.
The value of imports in 1993/94 amounted to US$29.1 billion or an increase
of 15.1% annually from US$831.0 million in 1968. Imports of the non-oil and
gas sector rose from US$751.0 million in 1968 to US$25.3 billion in 1993/94,
or an increase of 15.0% per annum. Meanwhile the imports of the oil-and-gas
recorded an increase of 16.5% annually from US$80.0 million in 1968 to
US$3.8 billion in 1993/94.
Parallel with the increase in industry and investment activities in
Indonesia during Repelita V, demand for imported goods also increased
sharply. The value of raw materials import in 1968 was US$253.6 million. It
increased 18.4% annually to US$17.9 billion in 1993. The value of capital
goods import increased of 15.5% annually, namely from US$89.6 million in
1968 to US$7.1 billion in 1993.
Meanwhile, Indonesia's on-going transactions showed a general decrease
except in 1979/80 and 1980/81, when the oil-and-other commodities prices
drew up. The deficit in on-going transactions has varied in parallel with
the growth of exports, imports and services. In 1968, the deficit in
on-going transactions amounted to US$287.0 million. It increased to US$1.0
billion at the end of Repelita V. In the beginning of Repelita V, the
deficit in on-going transaction was US$1.6 billion or 1.7% of the Gross
Domestic Product. In 1990/91 it was US$3.7 billion or 3.4% compared to GDP.
In 1991/92, it was US$4.4 billion or 3.7% compared to GDP. In 1993/94, the
deficit in on-going transactions amounted to US$2.9 billion or 2.0% compared
In the meantime, foreign exchange reserves during the Repelitas increased
from US$6.0 billion in 1988/89 to US$12.7 billion in 1993/94. The said
amount is indeed sufficient to finance the imports (c&f) outside the oil and
natural gas for about 5.4 months.
The expansion in trade partnerships has characterized Indonesia's recent
commercial activity, including trade alliances with China, Vietnam and the
former Soviet Union. In an attempt to integrate further, Southeast Asia's
combined market of 325 million people, economic ministers from the ASEAN
nations endorsed a plan to form a free trade area among member countries
over the next 15 years.
Indonesia has taken vigorous steps to enable it to participate more fully
and equitably in the process of world trade through successive deregulation
and reform packages. The Government fully realizes the benefits of
relatively open world markets and of better access to the Indonesian market.
It is signatory to the General Agreement on Tariffs and Trade (GATT) and a
member of the United Nations Conference of Trade and Development (UNCTAD).
Indonesia has long occupied a major place in global markets as a supplier of
oil and gas and also of certain raw materials. Today the Government not only
hopes to achieve but is achieving an ever growing place in world markets for
Indonesian raw materials and products, which promise to make the country a
significant player in global market.
The industrial sector is currently the driving force behind Indonesia's
economic growth; the export of non-oil-and-gas products in fiscal year
1993/94 reached a value of US$25,311 million. Indonesia's total export
revenue for1993/94 including oil and gas was US$29,127 million. The largest
export growth was registered by the mining sector at 40%. The export of
industrial goods rose by 27% and agricultural products by 10%. The leading
manufactured exports ere textiles, garments, plywood and wood products,
electrical goods, footwear, paper products, essential oils, processed foods
and edible oils. Industrial goods made up 82% of non-oil and gas exports.
Concurrent with establishing itself as a growing exporter of basic
manufactured goods, Indonesia has also moved into the export of more
advanced products including aircraft and aircraft components, electronic
goods and measuring instruments.
Major exports include:
* Wood products Fisheries
* Fabrics Tea
* Coffee Iron and steel articles, metals
* Electrical appliances Palm oil
* Fertilizers Paper and paper products
* Gold Glass and glassware
* Cement Latex, rubber and rubber products
* Garments Footwear
* Processed food Furniture
* Animal feed Spices
* Chemicals Essential oils
* Cocoa beans Leather and leather products
The import value in 1993/94 amounted to US$29.1 billion or an increase of
15.1% annually from US$831.0 million in 1968. The value of non-oil and gas
imports increased from US$751.0 million in 1968 to US$25.3 billion in
1993/94 or an increase by 15.0% annually. Meanwhile, oil and gas imports
rose by 16.5% annually, from US$80.0 million in 1968 to US$3.8 billion in
Major import categories include:
* Transport equipment
* Crude inedible materials
* Fuels and lubricants
CURRENCY AND FINANCIAL MATTERS
Indonesian currency is the rupiah. Notes come in the denominations of
50,000, 20,000, 10,000, 5,000. 1,000, 500, and 100 while coins come in the
denominations of 1,000, 500, 100, 50, 25, 10, and 5.
There is no restriction on the import and export of foreign currencies in
cash, travelers checks and other bank instruments, which are fully
convertible to Indonesian rupiahs, vice versa.
The following table of exchange rates for the rupiah against the U.S. dollar
provides an idea of changes in the value of the currency in recent years.
RUPIAH EXCHANGE RATES
|Year ending December 31 Per US $1.00|
Since 1986, the value of the rupiah has been allowed to decline at a rate of
about 4% per annum.
The adjustments of the rupiah exchange rate are reviewed and fixed on a
daily basis by the central bank, Bank Indonesia.
Indonesia's Main Economic Indicators
| Indicators||1990 || 1991 || 1992 || 1993|
| GDP (in billion rupiahs, in current market prices)|| 197,721.0 ||226,508.6 || 260,786.3 || dna*|
| GNP per Capita (in rupiahs in 1983 constant market prices)|| 625,109.7 || 654,663.6 ||683.751.8 || dna*|
| Growth of GDP (%) (1983 constant market prices)|| 7.37||6.91 || 6.43 || dna*|
| Per Capita Income (in rupiahs in 1983 constant market prices)|| 545,108.0 || 575,906.9 || 599,717.6 || dna*|
| Inflation rate (%) Amount of money supply (in billion rupiahs)|| 23,570|| 27,319 ||30,592||38,452|
| a. Current|| 9,026 || 11,025 || 12,324 || 15,652|
| b. Demand deposits|| 14,544 ||16,293 || 18,268 || 22,800|
| Foreign exchange reserve at Bank Indonesia (in million US $)|| 9,561 || 9,6||11,9|
| Exports f.o.b. (in million)|| 28,143 || 29,714 || 35,303 || 36,504|
| Oil and gas|| 12,760 || 10,706 || 10,480 || 9,339|
| Non-oil and non gas|| 15,380 || 19,008|| 24,823|| 27,170|
| Imports f.o.b. (in million US $)|| 23,028|| 24,803|| 27,317||29,127|
| oil and gas|| 3,510 || 3,143|| 3,566|| 3,816|
| Non-oil and non-gas|| 19,448|| 21,660|| 23,751|| 25,311|
| Balance of trade (in million US $)|| 5,115|| 4,911|| 7,987|| 7,477|
| Surplus of capital and transfer account (in billion $)||6.8|| 4.8|| 12.7|
|Routine Expenditures (in billion Rupiahs)||29,997.7 || 30,227.6 || 34,031.2 || 38,799.3|
| Development expenditures (in billion Rupiahs)||19,452.0 || 21,764 || 224,134.8 || 25,661.1|
* Data not available
Anyone residing in Indonesia for more than 183 days in a single year and
earning income there is subject to a withholding tax of 20% on the gross
income. The tax year is generally the calendar year unless otherwise
specified and approved. All taxpayers must register with the Directorate
General of Taxes and obtain a taxpayer identification number. It is the
taxpayer's responsibility to obtain, complete and submit tax returns.
Rates of personal and corporate income tax for residents are:
Up to Rps 10 million 15%
From Rps 10.1 million to Rps 50 million 25%
More than Rps 50 million 35%
Oil and gas companies pay 45% tax for contracts prior to January 1, 1984,
and 35% thereafter. Mining companies pay 35% tax for contracts prior to
February 28, 1985, 40% after February 28, 1985 is 35%.
Indonesian taxes citizens and residents on world-wide income. A non resident
expatriate is taxed on income derived from Indonesia. Resident individuals
may enjoy personal allowances for:
The individual Rps 960,000
Married taxpayer who is principal earner Rps 480,000
Up to three dependent relatives Rps 480,000 each
Occupational support, computed on
5% of gross salary earned during the Rps 360,000
year, not exceeding
Contributions to government approved
pension funds not to exceed Rps 120,000
Capital gains and all forms of investment income are taxable but an
employee's benefits in kind such as a house or car are not.
Indonesia has double taxation agreements with:
A value Added Tax of 10% is imposed on many goods and services and there is
a Luxury Sales Tax levied at the rates ranging from 10% - 30%.
There is a land and building tax of 0.5% on 20% of the taxable value of the
Stamp duties range from Rps 500 to Rps 1,000 depending on the type of
Residents and foreigners residing in Indonesia are subject to an exit tax of
Rps 250,000 traveling by air and Rps 100,000 traveling by sea. The tax is
creditable against an individual tax liability. Visitors pay an airport tax
of Rps 17,000 upon departure and on a scale for departures from domestic
BANKING AND OTHER FINANCIAL INSTITUTIONS
The country's commercial banking industry includes public and private
national banks, development banks, foreign bank branches and joint-venture
To create a monetary climate which is conducive to enhancing national
development, the Government has demonstrated serious attempts by issuing
monetary policies as well as deregulatory measures, such as Pakjun-1983
allowing banks to freely determine interest rate, abolishing credit ceiling
and reducing the role of the Central Bank, Pakto-1988 aimed at promoting an
efficient allocation of funds in the financial and banking sectors, and
Pakeb-1991 with special intention to improve the quality of the principal
economic players through prudential management of banking operations.
Meanwhile, the Banking Act 1992 affirms that the previous policies will be
pursued in a stronger legal environment.
Undoubtedly, the banking industry needs to continuously improve its
professional capability. Bankers should strive for a high degree of their
professionals and skills.
The country's growing economy will certainly result in wider business
opportunities for the banking industry. Current monetary and financial
policies which are conducive to the promotion of an efficient market
mechanism is another aspect favorable to the growth of the banking industry
in the 1990s and beyond.
Firm government monetary policies to establish a strong financial sector in
the country have paved the way for assured development of the banking
As a result of deregulatory measures in the banking sector in 1983 and
particularly in 1988, the number of private commercial banks, for instance,
until March 1993 grew to 144 with 2,773 offices. In addition, there were
five state-own banks with 981 offices (each bank have also representative
offices abroad), one development bank with 42 offices, 27 regional
development banks with 426 offices, 39 foreign and joint-venture banks with
75 offices, one private regional development bank with 19 offices, one
state-owned saving bank with 43 offices, two private saving banks with 89
offices, and more than 5,500 rural banks.
Bank Indonesia is the country's Central Bank. Pursuant to the Central Bank
Act of 1968, its major functions are to issue currency, devise and implement
monetary policy, act as the government's banker, and supervise and regulate
Bank Indonesia is the sole issuer of the Indonesian currency, i.e. rupiah.
In addition, it also holds the official international reserves of the
economy. Each day it sets the rupiah exchange rate against the US dollar and
a basket of currencies representing the country's main trading partners and
the International Monetary Funds (IMF) Special Drawing Right (SDR). It
offers and supplies foreign exchange on the local market at the exchange
rates bid for and offered against dollar and other currencies.
Under the direction of the Economic Stabilization Council, the Governmental
Advisory Body, chaired by the Coordinating Minister for the Economy,
Finance, Industry and Development Supervision, and consisting of the
Minister of Finance, the Minister of Trade, the State Minister of National
Development Planning and the Governor of Bank Indonesia, devises and
implements monetary policy.
Bank Indonesia is headed by a governor and five managing directors appointed
by the president for a five-year term. They are responsible to the
In addition, Bank Indonesia supervises and regulates all financial
institutions with the exception of insurance companies and NBFIs. Therefore,
it regulates the liquidity positions of banks by adjusting the minimum
liquidity ratio and the minimum reserve requirements that all deposit-money
banks are required to maintain.
There are five state-owned banks, all of which are authorized to deal in
foreign exchange. Each bank serves banking services in specific sectors of
economy. Bank BNI, the largest of the banks in terms of asset, is primarily
responsible for development projects related to manufacturing industry,
agriculture, transportation and export of domestic commodities. Bank Dagang
Negara specializes in the financing of mining projects and the production of
export commodities. Bank Bumi Daya specializes in agriculture, forestry and
plantations. Bank Rakyat Indonesia, is primarily concerned with agricultural
smallholdings and rural development. Bank Exim Indonesia, is concerned with
the finance of export and import commodities.
(Source: INDONESIA 1995, An Official Handbook.)
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