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 resources.

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.


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 increases.


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 domestic products.

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 Prices

Table: 2

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)162,777.7190,219.7 217,500.2
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)

Table: 3

Description 1989/901990/91 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 technological research.


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)

Tabel: 4

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 concerned.

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.


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 to GDP.

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
* Tobacco

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 1993/94.

Major import categories include:

* Machinery
* Transport equipment
* Chemicals
* Manufactures
* Crude inedible materials
* Fuels and lubricants
* Food
* Livestock
* Drinks
* Tobacco


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.


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.

Table: 5

Indonesia's Main Economic Indicators
Indicators1990 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) 7.376.91 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 30,59238,452
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 9,611,9
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 27,31729,127
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:

United Kingdom
New Zealand

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 taxed object.

Stamp duties range from Rps 500 to Rps 1,000 depending on the type of document.

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 airports.


The country's commercial banking industry includes public and private national banks, development banks, foreign bank branches and joint-venture banks.

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 system.

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 financial institutions.

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 Government.

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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