Republic of Indonesia
LOCATION AND SIZE.
Indonesia is an archipelago (a group of islands) stretching along the equator between the Southeast Asian mainland and Papua New Guinea, with which it shares an island. The country has a total land area of 1,919,440 square kilometers (741,096 square miles), or about 3 times the size of Texas. An additional 3.2 million square kilometers (1,235,520 square miles) of ocean is within Indonesia's borders.
With 17,000 islands (11,000 of them inhabited), Indonesia's coastline stretches 54,716 kilometers (34,000 miles). The country controls important shipping lanes from the Indian Ocean to the Pacific Ocean, in particular the Strait of Malacca lying between the western Indonesian island of Sumatra and Malaysia. Indonesia has territory on some of the world's largest islands, such as New Guinea, Borneo, Sumatra, and Sulawesi.
The 2000 official census found 203,456,005 Indonesians (though most outside sources estimate 210 million), making Indonesia the world's fourth most populous country. An estimated birth rate of 22.6 per 1,000 people and death rate of 6.31 per 1,000 people means that the population is growing at an annual rate of 1.63 percent. The United Nations Development Program predicts that the population will reach 250.4 million by 2015. Like many developing countries, Indonesia has a young population, with 30.6 percent of its people under the age of 15. In 1998 almost two-fifths of the population lived in urban areas, double the 1975 level.
Indonesia has hundreds of ethnic groups, with the 2 largest—Javanese (45 percent) and Sundanese (14 percent)—living on the island of Java. One of the most densely populated places in the world, Java is about the size of New York State and is home to more than 110 million people. Other ethnic groups include Madurese and coastal Malays, who each make up 7.5 percent of the population, and numerous other ethnic groups accounting for 26 percent. Indonesian Chinese, whose ancestors mostly came to the Dutch East Indies as workers, are a small but economically important minority with 2 percent of the population but a majority of the wealth.
Java and Bali are often referred to as the Inner Islands, with the other less densely populated ones known as the Outer Islands. Starting in 1969, the government pursued a policy of transmigration (a program to shift inhabitants from more crowded to less crowded areas). Millions of people have joined this official migration program based on the promise of land and support. After years of criticism for damage to the environment, failure to live up to promises to the transmigrants, and conflicts with local inhabitants, the government announced an end to the program in 2000. Many Indonesians also migrate on their own from one part of the country to another in search of farmland or jobs.
Indonesia has 5 officially recognized religions: Muslim (88 percent), Protestant (5 percent), Roman Catholic (3 percent), Hindu (2 percent), and Buddhist (1 percent), as well as numerous traditional religions. More Muslims live in Indonesia than in any other country. The official
Indonesia's family planning program was formally established in 1970 after years in which rapid population growth was not seen as a problem and even at times encouraged. The Indonesian family planning program has involved thousands of village-level volunteers, grassroots organizations, and religious leaders and a multifaceted approach that brings together agencies and organizations. The phrase "dua anak cukup" (2 children are enough) appears on T-shirts, statues, and television broadcasts, and family planning and reproductive health program services are made available in over 10,000 clinics, hospitals, and community health centers. The National Family Planning Coordinating Board (BKKBN) coordinates efforts but does not implement activities by itself.
Indonesia has a significant challenge in implementing a population policy, given the size of the population, the geographic distribution, and occasional cultural and religious objections. Despite this, Indonesia has achieved what the World Bank has called "one of the most impressive demographic transitions anywhere in the world." The growth rate has fallen from 2.5-2.7 percent in 1970 to 1.63 percent, and the total fertility rate fell from 5.5 births per women between 1967-70 to 2.6 births per woman in 1995-2000. Indonesia is often held up as a model for developing countries.
As a result of various conflicts, Indonesia has over 1 million internally displaced people (IDPs) who have fled their homes to avoid ethnic, religious, or political violence and military repression, most notably involving populations in Maluku, West Kalimantan, and East Timor.
In much of the nation, the primary crop is rice, sometimes grown in extensive rice terraces with complex irrigation systems. Secondary crops, known as palawija, grown outside of the rice-growing season, include soybeans, corn, peanuts, and mung beans. In mountainous areas highland vegetables are grown, including potatoes, cabbage, carrots, and asparagus. Major fruit crops include bananas, mangos, papaya, oranges, and pineapples. In drier areas root crops such as cassava are an important product.
In the 1970s the set of agricultural innovations known as the Green Revolution introduced new seed varieties that responded well to fertilizers and pesticides, dramatically boosting rice production. Indonesia went from being the world's largest importer of rice in the 1970s to being self-sufficient in 1985. However, the increased dependence on these costly chemicals also carried negative environmental and economic impacts, and the benefits did not reach farmers in dry, mountainous, and other marginal areas.
Forests and woodlands cover 62 percent of the country, making Indonesia the most heavily forested region in the world after the Amazon. Tropical rainforests make up the vast majority of this acreage, particularly in Kalimantan, Sumatra, and Papua (Irian Jaya). The colonial authorities found the climate and rich volcanic soil perfect for commercial crops such as coffee, rubber, and palm oil. Large private European and American plantations were crucial to the colonial economy in the late 19th century. Many of these estates were nationalized and are now operated by state-owned enterprises. Large private plantations remained as well, such as the Goodyear rubber plantation in North Sumatra.
The 1967 Basic Forestry Law gives the government sweeping control over 143 million hectares (357.5 million acres) classified as public forest land. State interest takes precedence over customary ownership of forests, despite the frequent presence of communities who have used the forests for generations. The 1967 law sparked a boom in the timber industry, and in 1978 timber exports reached half the world's total. Exports dropped after the government issued new regulations on the export of un-processed timber, forcing logging firms to build plywood plants to capture more of the value of the lumber. In 1999 there were some 442 concessions (rights to forest lands given to logging companies) covering 51 million hectares (127.5 million acres), nearly a third of the country. These concessions generally last for 20 years and average 98,000 hectares (245,000 acres) in size. The government promotion of timber processing, the transmigration program, and population pressures on traditional shifting cultivation systems led to annual deforestation of 1 percent in the 1990s, much higher than the world average.
In the last few years, the combination of drought and human activity has led to massive forest fires, on the island of Borneo in particular, covering parts of Southeast Asia in haze. Although the fires were at first blamed on small farmers, a major cause was determined to be illegal clearing of land for large plantations. In 2000 the attorney general's office carried out investigations into the misuse of Rp1.6 trillion (US$216 million) in funds intended for reforestation. The 5 suspects were all linked to Suharto, including 1 daughter and a half-brother. The Ministry of Forestry and Estate Crops recently suspended 46 forest concessions due to documentation errors and improper logging operations.
Fish is a main source of animal protein in the typical Indonesian diet. The fishing industry continues to rely on traditional methods and equipment, although the government has been promoting the motorization of traditional fishing boats. Foreign fishing boats contribute to growing exports, mostly shrimp and tuna caught for sale in the Japanese market. However, the supply of fish is threatened by illegal fishing from foreign boats and severe environmental degradation.
Prawns are an important export and are increasingly raised on massive coastal farms capable of bringing in large amounts of export earnings. Indonesian prawn exports exceeded US$1 billion in 1998, a significant portion of total agriculture exports. These operations often destroy coastal mangrove forests and have been involved in the exploitation of workers in Sumatra who raise the shrimp on a contract basis and are unable to get out of debt to the shrimp farm companies.
Manufactured goods such as textiles, clothing, footwear, cement, and chemical fertilizers are an important part of Indonesia's international trade, with textiles being the largest export, as well as other labor-intensive products such as garments, furniture, and shoes. Indonesia has been unable to move to high-technology exports like computer equipment but has had growing success with basic machinery and electronics. In 2000, electronics increased to 10 percent of total exports (not including oil and gas), still much less than other developed Southeast Asian economies such as Malaysia, Philippines, and Thailand.
Government policies of the 1970s helped move industry toward heavy industries such as petroleum processing, steel, and cement. The sector shifted again in the mid-1980s towards manufacturing of goods for exports, this time mostly through private rather than government investment. Manufactured exports grew in value from under US$1 billion in 1982 to more than US$9 billion in 1990. As a share of exports, manufactures grew from only 4 percent in 1965 to 35 percent in 1990. After a long period of growth, industrial production fell during the financial crisis that hit the region in 1997.
Following the government bailout of bankrupt companies, the Indonesian Bank Restructuring Agency (IBRA) officially owned most of the manufacturing sector in 2000, although the original owners may retain control of their businesses in the end. Small and medium businesses were less affected by the crisis because they borrowed less. However, they also suffered from the sudden disappearance of credit and were not eligible for bailout programs as the big companies were. The government, recognizing the historical failure to reach Small and Medium Enterprises (SMEs) with government assistance, established a task force to develop an SME strategy with support from the World Bank and the Asian Development Bank. The strategy, under preparation in 2000, aims to make businesses development services more responsive to SMEs, expand access to credit, and simplify regulations.
Important minerals and metals include tin, nickel, bauxite, copper, coal, gold, and silver. As in the oil and gas industry, foreign companies carry out mining operations, assume all risks, and share revenues with the government. The world's largest copper and gold mine is in Papua (formerly Irian Jaya); it has brought in tremendous revenues, but there have been charges of environmental damage and human rights abuses of local inhabitants.
OIL AND GAS.
The role of oil and gas in Indonesia's economy is extremely important, especially following the OPEC oil price hikes in 1974. As a result, the share of government revenues derived from this sector grew from 19.7 percent in 1969 to 48.4 percent in 1975. As a share of export earnings, oil and gas hovered around two-thirds of the total over the next decade and even reached 80 percent in 1981. During the 1970s, these revenues were a major source of the country's development budget. By 1999 the economy was more diverse and had a strong manufacturing sector, with oil and gas accounting for just 20 percent of total exports of US$48 billion.
Indonesia is the world's largest exporter of liquefied natural gas, much of it from the strife-torn area of Aceh, where resentment of the government's failure to share the benefits of the windfall is one factor in the separatist movement. Most oil exploration and drilling is done by foreign contractors under agreements with Pertamina, the state-owned oil and gas company. Pertamina grew in the 1970s to be a colossal conglomerate active in many sectors, but it was later discovered to be deeply indebted and in need of restructuring. During this time it was an important source of unofficial funds for military and political factions.
The Indonesian financial sector was long burdened by heavy debt and by numerous bad loans made on the basis of corruption and cronyism. In the aftermath of the financial crisis of the 1990s, more than two-thirds of bank loans were thought to be impossible to recover, and the number of banks fell from 238 to 162. Many surviving banks are technically bankrupt or limited by very low amounts of capital. Following the collapse of the banking system, the government formed the Indonesian Bank Restructuring Agency to restructure banks, collect on bad loans taken over from banks, and, unlike similar agencies in other countries, even sell assets pledged to it in return for the bailouts. IBRA reported US$52 billion in assets in 2000. The agency has been slow to carry out its duties, and has also been accused of cronyism.
By 2000 banks had slowly begun lending again, but mostly to consumers rather than companies. Businesses were forced to try to raise money in other ways, such as through their business activities, by borrowing overseas, or by issuing bonds. Deregulation in 1998 opened the banking, securities, and insurance industries to more foreign investment. In 1999, the central bank, Bank Indonesia, was given full autonomy from government interference. Bank Indonesia still works to maintain the value of the rupiah and keep inflation under control.
Given Indonesia's beaches, temples, and rich spectrum of cultural events, tourism remains an important source of foreign exchange. Bali is one of the most visited spots in the world. Fears of political instability and conflict have hurt tourism, though, in recent years, but there is a good potential for recovery and growth, as facilities and infrastructure are intact, and the exchange rate is favorable to visitors.
In 1983 Indonesia discovered that tourism had fallen by a third in just 1 year and took measures to increase visits, including issuing visas on arrival, creating better airline connections, and appointing a minister of Tourism, Post and Telecommunications. The strategy worked, and tourist arrivals peaked at more than 5 million just before the financial crisis. Tourism has slowed since then, but in 2000 the government recorded a small increase, to 4.15 million foreign tourists. The airport on the small island of Bali accounts for 1.47 million arrivals alone. Continued increases in tourist arrivals are likely, but some tourists may be scared off by violence, ethnic unrest, and labor stoppages.
The retail market was badly affected by the financial crisis, as increased unemployment and poverty reduced consumer demand for goods. Retailers selling imported goods were forced to charge much higher prices. There has been some recovery since 1998, partially due to wealthier Indonesians' bringing money back from overseas where they tried to shelter it from the effects of the financial crisis. The retail food sector is dominated by traditional outlets such as small restaurants and the omnipresent street stalls, known as warungs. Modern supermarkets and retail outlets make up only 20 percent of retail food outlets even in Jakarta, which has the most advanced economy in the country.
Indonesia has no territories or colonies.
Indonesian rupiah (Rp). One rupiah equals 100 sen. There are coins of 1, 2, 5, 10, 25, 50, and 100 rupiahs, and notes of 100, 500, 1,000, 5,000, and 10,000 rupiahs.
Oil and gas, plywood, textiles, rubber.
Machinery and equipment, chemicals, fuels, foodstuffs.
GROSS DOMESTIC PRODUCT:
US$610 billion (purchasing power parity, 1999 est.).
BALANCE OF TRADE:
Exports: US$48 billion (f.o.b., 1999 est.). Imports: US$24 billion (c.i.f., 1999 est.).