Indonesia Economy and Energy


After the election of the new president Widodo, the economy has become one of the main themes of the Indonesian political debate, especially on the issue of state subsidies for energy. The gradual reduction in subsidies from 2013 onwards has led to a rise in gasoline prices and the proposal to cut them further has sparked strong opposition. The decrease in global gas and oil prices between 2014 and 2015, however, played in favor of the government which managed to completely repeal fuel subsidies in January, thus freeing up financial resources that were redistributed towards welfare and infrastructure modernization. For Indonesia business, please check

During the fifteen years following the achievement of independence, Indonesia failed to produce noteworthy economic performances, mainly due to political instability and inappropriate strategic choices. Economic development was made difficult above all by problems related to the exchange rate and the lack of foreign capital, after the government had banned all forms of foreign interference in the private sector in 1957-58. Sukarno aspired to self-sufficiency and, with the strengthening of his communist orientation, he removed foreign capital from the country. The next president, General Suharto, reopened the country to foreign investment, restored political stability at the expense of military power, and led Indonesia into a period of economic expansion under his authoritarian regime. the Orde Baru (New Order), which lasted until 1997. During this period, industrial production increased significantly and the country benefited greatly from the export of oil, gas and timber. Suharto chose to invest a large share of export profits in the development of technologically advanced manufacturing sectors, propelling the country towards stable and unprecedented economic growth.

The financial crisis of 1997, however, revealed a series of weaknesses in the Indonesian economy: the weak and not fully transparent financial system, risky investments in the real estate market, the enormous gaps in the legal and judicial system. The numerous incidents of corruption, which emerged at all levels of the bureaucracy, caused great scandal throughout the country and accelerated the twilight of Suharto’s autocratic regime. Even today, the Indonesian economy suffers from the effects of the 1997 crisis and has not benefited from the political reforms following the fall of Suharto in 1998. However, since the beginning of the new century the economy has given positive signals, also thanks to the election of the president. Yudhoyono in 2004: the new administration introduced significant reforms in the financial sector.GDP and good tax administration. The other side of the coin, however, is represented by the high unemployment rates and the lack of wage growth that have raised poverty levels: over 40% of the Indonesian population still lives on less than $ 2 a day.

The country has therefore had to face the handicap created by the large pockets of poverty and unemployment, the inadequacy of most of its infrastructures, corruption and the unequal distribution of resources among the regions. For these reasons, the country’s growth potential still remains largely unexpressed as it fails to attract sufficient investments to give new impetus to the Indonesian economy.

Energy and environment

In 2008, Indonesian oil production stood at just over one million barrels per day: this figure certified a decrease in production of about 35% starting from 1998, due to the progressive depletion of some oil fields. As Indonesian production no longer met the quotas imposed by OPEC, the country was forced to leave the organization in 2008. In the same year, Indonesian oil consumption reached 1.2 million barrels per day, making the country a net importer. According to some estimates, Indonesia is the 11th nation in the world – and the largest in Asia – for natural gas reserves. Most of these reserves are located offshore, especially off the Natuna Islands, South Sumatra and West Papua. Indonesia exports large quantities of natural gas, particularly to Japan, Singapore and South Korea.

The country has launched a very ambitious plan to tap into the geothermal energy of its volcanoes. If it succeeded in this aim, thus reducing greenhouse gas emissions, it would establish itself as the world leader in this particular sector, which already represents a quarter of the national energy mix. However, the biggest problem remains investments, since setting up a geothermal plant costs about double the cost of building a traditional energy plant. The greatest difficulties facing the country from an environmental point of view are undoubtedly the size of its population. Carbon monoxide emissions remain relatively low, but the demographic weight makes this problem a growing source of pressure.

Indonesia Economy

About the author