Economy of Indonesia

Indonesia is a country that contains great economic potential; a potential that has not gone
unnoticed to part of the international community. Indonesia - Southeast Asia's largest economy -
is increasingly mentioned as an appropriate candidate to be included in the BRIC countries
(Brazil, Russia, India and China) as the country is rapidly showing signs of similar newly
advanced economic development. Recently, a new set of emerging economies has gained public
attention. Members of this set are countries that contain promising markets with diverse
economies, reasonably sophisticated financial systems and fast-growing populations. These
countries are grouped under the acronym CIVETS (Colombia, Indonesia, Vietnam, Egypt,
Turkey and South Africa), and its combined Gross Domestic Product is predicted to account for
half the global economy by 2020.

Another important example of international recognition regarding Indonesia's economy is the

recent upgrades in the country's credit ratings by international financial services companies such
as Standard & Poor's, Fitch Ratings and Moody's. Resilient economic growth, low government
debt and prudent fiscal management have been cited as reasons for the upgrades and are key in
attracting financial inflows into Indonesia: both portfolio flows and (significant increasing)
foreign direct investments (FDI). These FDI inflows, which had been relatively weak for
Indonesia during the decade after the Asian Financial Crisis had seriously shaken up the
foundations of the country, showed a steep increase after the global financial crisis of 2008-2009.

What are Indonesia's strong points that explain increasing foreign investments and the recent
macroeconomic growth?

Abundant and diverse natural resources

Young, large and burgeoning population
Political stability (relatively)
Prudent fiscal management since the late 1990s
Strategic location in relation to the giant economies of China and India
Low labour costs

Indonesia, a market economy in which the state-owned enterprises (SOE) and large private
business groups (conglomerates) play a significant role, thus shows a number of highly positive
features at the beginning of - what can become - a period of substantial economic development.
However, it should also be pointed out that Indonesia is a complex country that contains certain
risks for investments and experiences difficulties within the framework of its unique dynamics
and context. In order to be aware of the risks involved we advise you to read our Risks of
Investing in Indonesia section and to keep track of Indonesia's latest economic, political and
social developments through our News section, Business section and Finance section.

This Economics section provides an outline of the current state of the Indonesian economy and
discusses a number of important chapters in the economic history of Indonesia:
http://www.indonesia-investments.com/culture/economy/item177

http://www.indonesia-investments.com/culture/economy/item177

Rice Mafia of Indonesia Active Again? Suspicious Supply-Price Fluctuation

23 February 2016 |

Rice Mafia

Amran Sulaiman

Rice Consumption

Rice Production

Rice Price

Agriculture Ministry

Scandals

Poverty

KPK

Rice

Inflation

Indonesian Agriculture Minister Andi Amran Sulaiman has a strong suspicion that the "rice
mafia" is behind the recent fluctuations in rice supply and prices in Indonesia. Suspicion
emerged after new rice supplies suddenly 'flooded' Indonesian markets in February when prices
of rice had already risen due to the scarcity of supplies. Sulaiman believes there is a cartel
consisting of six big Indonesian rice distributors that deliberately hid rice output after last year's
harvest and waited for prices to rise significantly before supplying rice to the markets in order to
see higher profits.

The case is currently being investigated by the Business Competition Supervisory Commission
(KPPU). However, Minister Sulaiman does not want the investigation to stop at this institution as
he regards this act a criminal offense. Therefore, he also requests the Indonesian Police,
prosecution and the Corruption Eradication Commission (KPK) to be involved. Rice is a key
staple food product for the Indonesian population (consumed by all segments - from the poor to
rich - on a daily basis). When the price of rice rises then there emerge serious pressures on the
poorer segments of society. This can lead to an increase in the nation's poverty rate as a large
portion of the Indonesian population lives just above the poverty line.

Suwandi, Head of Data and Information (Kapusdatin) at the Agriculture Ministry, said the KPPU
and KPK are already involved in the monitoring and investigation of the (alleged) rice cartel
after suspicion arose when - after a bad harvest season - rice supplies suddenly jumped at the
nation's seven rice market centers in February 2016. In the first week of February the average
price of rice was IDR 13,344 (approx. USD $1) per kilogram. However, due to ample rice
supplies prices suddenly fell to the range of IDR 7,500 - IDR 10,000 per kilogram in the second
week. In the first week of the month rice stocks at the Cipinang Rice Market stood at 29,458
tons. One week later reserves had nearly doubled to 52,383 tons. The same phenomenon
occurred at the nation's other rice centers.

Indonesian Agriculture Minister Sulaiman declined to mention the names of the six big rice
distributors that - according to him - formed a cartel that deliberately led prices rise before
pouring rice supplies to the market. However, there are not many big players active in
Indonesia's rice production and distribution sector. Big players in Indonesia's rice industry
include Tiga Pilar Sejahtera Food, Buyung Poetra Sembada, Sumber Energi Pangan, and
Lumbung Padi Indonesia. But whether these companies are involved in the cartel remains
unclear.

Indonesia's Rice Balance:

Year Production Demand Import

2011 36.97 33.04 1.90

2012 38.18 33.03 1.83

2013 39.60 34.55 0.72

2014 40.63 36.44 0.09

2015 41.99 33.36 0.02

in million tons of rice

projection

Source: Kontan

In recent years there have been more allegations of unethical activity conducted by the 'rice
mafia'. But cases are not only confined to the rice industry. Last year, Indonesia was also plagued
by sharply rising beef prices. According to the Indonesian government this price surge was also
the result of groups deliberately holding on to the beef supply in a bid to raise prices.

TUESDAY, 23 FEBRUARY, 2016 | 13:14 WIB

Online Shopping via Smartphone Expected to Jump

172.8%
Zoom Out Zoom In Normal

TEMPO.CO, Jakarta-E-commerce observer from Bandung Technology Institute (ITB), Kun Arief
Cahyantoro estimates the use of e-commerce application through smartphones will drastically
increase in 2017. The increase is estimated to reach 172.8 percent, Kun said in Locanda Cafe on
Monday, February 22, 2016.

In January 2016, it is recorded that 88.1 million people have became active smartphone users while
the number who purchase online is only at 12.82 million. The number of online buyers via
smartphone is predicted to jump surpassing the number of PC users.

With the increase of e-commerce app users via smartphone of 172.8 percent, the number of
consumers could reach 34.97 million. Meanwhile, online purchases through PC is just 30.25 million.

This year, the highest number of online shoppers are still from PC or tablet PC users with 21.14
million, whereas the number of mobile phone shoppers is only 12.82 percent.
The number could be projected because in 2014, online shoppers through mobile purchase is only
4.86 million, but then experienced a hike of 155 percent in 2015. If it could reach 12.82 million in
2016; it will reach 34.97 million in 2017, or up by 172.8 percent, Kun said.

The trend could change due to several considerations, one of them is the practicality. Smartphones
are considered to be more practical as using PC will require longer time.

Consumers will consider easy access, so they prefer to carry a smartphone rather than a laptop or
tablet PC.

In October 2012, the population of mobile subscriber is greater than the Indonesian population.
While in July 2009, Indonesian mobile growth exceeded the global mobile growth. People no longer
need laptpop. Smartphone is the new computer, said Kun.

LARISSA HUDA