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INDONESIA

Final Report

Submitted on:
11/30/2014

To:
Dr. Mehwish Ghulam Ali

By:

Ahmed Abdul Wahid 04375


Amjad Ali Memon 04266
Ghufran Sheraz
Maida Ajmal 05145
Nawab Ghazanfar 04283
Sameel Noman 04367
Acknowledgement and statement of contribution ...................................................................................... 3
Executive Summary:...................................................................................................................................... 5
Overview ....................................................................................................................................................... 6
An overview of MDG goals............................................................................................................................ 8
LINEAR STAGES OF GROWTH APPLIED.................................................................................................. 8
Income and happiness ........................................................................................................................ 11
Human development index................................................................................................................. 12
Is Indonesia developing or developed country? ......................................................................................... 13
Level of living and productivity: .............................................................................................................. 14
Some structural changes:........................................................................................................................ 15
Level of human capital: ........................................................................................................................... 15
Inequality and poverty: ........................................................................................................................... 16
Colonial Impacts:..................................................................................................................................... 17
Poverty in Indonesia: .................................................................................................................................. 21
POPULATION:- ............................................................................................................................................. 26
Urbanization in Indonesia ........................................................................................................................... 30
Implications ............................................................................................................................................. 30
Population Demographics of Indonesia ...................................................................................................... 32
Ethnic groups .......................................................................................................................................... 33
Religions .................................................................................................................................................. 33
Languages ............................................................................................................................................... 33
Literacy .................................................................................................................................................... 33
Life expectancy at birth, total (years) ..................................................................................................... 34
Health:......................................................................................................................................................... 35
Education: ................................................................................................................................................... 40
TRADE.......................................................................................................................................................... 45
Conclusion and Recommendations: ........................................................................................................... 52
Conclusion: .................................................................................................................................................. 54
References: ................................................................................................................................................. 54

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Acknowledgement:

This research project would not have been possible without the support of many people. We
wish to express our gratitude to our instructor and partner in learning, Ma’am Mehwish
Ghulam Ali who was abundantly helpful and offered invaluable assistance, support and
encouragement. The blessing, help and guidance given by her time to time shall carry us a long
way in the journey of life on which we are about to embark.

We would like to thank our teaching assistant of this course, Mr. Anil Saleem for the valuable
guidance and advice. He inspired us greatly to work in this report. We also would like to thank
him for showing us some example that related to the format of our project.

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Statement of contribution:
Maida Ajmal: Poverty, MDGs, is Indonesia developing or developed and compilation of work

Ghufran Sheraz: Population, MDGs, Harold domar, stages of growth models

Amjad Ali Memon: Trade, Prebisch–Singer hypothesis, Introduction to economy, basic


indicators, compilation and made final presentation

Sameel Noman: Health, HDI, MDG and goals

Ahmed Abdul Wahid: Education, Income and happiness analysis

Nawab Ghazanfar: Population and Urbanization

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Executive Summary:

This report analyses the history and current situation of Indonesia, a country on its developing
stage in Asia. This is one of the most populous countries in the world and the issue of poverty is
quite prevalent in this area. Due to its diverse culture and nature its poverty figures differ
across different parts. Despite this a small amount of growth has been seen in the recent years
which are a positive indicator, as poverty has also reduced overtime. But despite all this
disparity between the rich and the poor has increased which no doubt is an alarming indicator.

In addition to this, this country has been analyzed at different levels like on the basis of
education, healthcare, trade and urbanization. Child labor is a growing issues as 30% of the
Indonesia’s population is very young and below the age of 15 years. Kids are forced into jobs
with very working conditions and also for the search of jobs people migrate from rural areas to
urban centers and a whole informal urban sector has been created. Also there two types of
education in Indonesia, Formal and Informal and the the proposed deterioration of the
curriculum’s integrity on such a massive scale is concerning as it may transform into a tool of
oppression by the Indonesian government. Since its commitment to the Millennium
Development Goals, Indonesia has made great effort to achieve the necessary targets especially
in the areas of education and health care. As a middle income developing nation, Indonesia has
been one of the few from this category who have achieved good results as a result of their
policies.

Integration of Indonesia’s economy since 1980s has been quite fruitful, globalization has further
made the economy to consume beyond its actual production. Openness has made its domestic
market more competitive. However economy still provides infant industry argument where
tariffs are still high and it doesn’t associate itself with trade agreements within regions
compared to its neighbors.
Overall future of Indonesia looks bright if government tries to improve the disparity and focus
on health, education and improvement of living standards.

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Indonesia
A country spread across Islands between Asia and Australia, Indonesia is the 16th largest

Economy in the world and home to the largest Muslim Population as well. Sukarno was able to

proclaim its Independence in 1949 after an arm struggle with the Dutch. Since then the country

has been in a continuous struggle to improve life of its inhabitants and the economy has

expanded strongly over the years.

Overview

Structure of the economy has changed considerably, where in 1950’s it was weighted more

towards agriculture, representing the stage of development. However 1950’s and 1960

Government is promoted agricultural self-sufficiency and soon moved towards introducing

policies in Industrialization and Urbanization. 1980’s when Indonesia saw a fall in oil prices,

moved away from oil export and diversified into manufactured products. Since then the

economy has been in continuous chase of increase its output production in order to cater to its

increasing population which stands at 242 million by end of 2011.

Indonesian Economy has been integrated with Global Trade since beginnig with its vast reserves

of Oil that became its major source of revenue till 1980’s, it even enjoyed oil shocks of 1970’s,

but it was in falling oil prices of 1980’s when it decided to diversift into Manufactured products.

Since 1990’s dynamics of trade changed with fuel (Oil, Coal, gas ) still being on Export list, many

other things along with Manufactured goods were added that includes travel services, tourism.

As a neighbour, Australia has been an important trading partner for Indonesia where it

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exports petroleum and a lot of tourist from Australia prefer a vacation in Indonesia adding

revenue to its economy.

Overall the Economy is performing well with its GDP growth rate that has moderated to 5.8% in

2013 from 6.3% average of last 3 years. Monetary policy has been designed to control

consumer expenditure by raising interest rates at the same time to manage widening current

account deficit, rising inflation and devaluation of Rupiah. The government is likely to follow

stabilization policy that it prefers benficial for the economy at this stage. An estimate of

Economic Indicators as by Asian Development Bank is given below:

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An overview of MDG goals

LINEAR STAGES OF GROWTH APPLIED


Before being the 15th largest economy (PPP adjusted) and a status of “newly industrialized

country, Indonesia was an agrarian economy which was nowhere near the status that it enjoys

today. It started urbanization in the 1960’s and in 1980’s it grew rapidly with declining oil prices

and trending toward exporting manufacturing product. After the mid 1980’s, the reduction in

trade barriers led to more opportunities to build strong relation with close neighbors such as

Australia.

However, the Asian Financial Crisis of 1997 severely affected Indonesia, leading to drastic

depreciation of Rupiah and high government expenditure. Policies from World Bank- Structural

Adjustment Programs (SAP), National Car Program and Clove monopoly (Damaging economic

policies of Indonesia) were ineffective in the hope to ameliorate the deteriorating conditions of

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Indonesia. The Asian Financial Crisis and the political instability were debilitating the economy

with the depreciating Rupiah, and double digit inflation that further hampered its growth.

It was only after 2004 that the potential was seen as the country was enjoying growth of 5.1%,

thanks to the increase in domestic consumption. Following are the figures for Indonesia:

SOURCE: http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf

The Jakarta Stock exchange saw an auspicious year in 2004 which increased by 24%. However,

Indonesia was still facing factors that beset the economy from growing. Factors like low levels

of foreign investment, red tapism/excessive bureaucracy and corruption which caused 51.43

trillion Rupiah/ $ 5.6573 billion OR estimated 1.4% of GDP to be wasted on an annual basis.

It wasn’t really pushing the country upwards as investments were still low in the economy. With

the encouragement from the government to increase tourism and increase exports to countries

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like USA, Australia Japan, China, India, Singapore and South Korea, the newly industrialized

country reached growth rate of 6.3% in 2007(10 year high). After India and China, Indonesia is

considered to be the fast growing economy in the G-20 economies.

In light of the discussion above, we can apply the Harrod-Domar growth model (Investment

leads to growth). With the help of tourism, the foreign investments grew and with more

domestic saving, the GDP growth became apparent after 2006 with the increase in investments

and trade with economic superpowers like Japan, China and USA along with other developing

Asian countries. The Industrialization can lead to high employment, people moving from rural

to urban areas for better standard of living and advancement in technology (components

mentioned in addition to investments-Economic Development, 11th Edition by Michael P.

Todaro and Stephen C. Smith). The poverty gap at ‘Urban poverty line %’ trend is shown by

graph below:

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SOURCE: http://data.worldbank.org/indicator/SI.POV.URGP/countries/1W-ID?display=graph

Income and happiness

The graphs covers the basic corelation between income and happiness across different

countries in the world. The general trend as we can see is that the higher the income the more

the happiness but we can also conclude that although income alone can lead to happiness but

there are several other factors aswell that lead to happiness amoung the low income group of

countries. Therefore as we can see there is no country that has very high income and very less

happiness howecer there are several countires that have very low income but happiness

comparative to that of the higher income countries. Indonesia as we can see is one of these

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countries where the income is less than $5000 per capita but in the happiness there are around

90 percent people happy, which is a great number. To put things into perspective the hapiness

is equal to that of belgium where the income of belgium is around $30000 per capita. This goes

on to show that other factors such as low unemployment, low inflation, low crime rate, better

sense of security, these factors are positive in indonesia leading to a high amount of happiness.

Human development index


Taking the income and happiness relation one step further I will now discuss the human

development index, which is a composite of life expectancy, education, and income indices

which are used to rank. There are 187 countries invovled in the index and HDI index is final

number according to weights and the score of each individual category mentioned above. As of

2012 the score indonesia got was .629 and it was ranked 121st ou tof the 187 countries. Talking

about the growth in HDI indonesia has been constantly grwoing since 1980 where the HDI was

.422 only.

comparing the HDI with other countries indonesia shares the rank with southafrica and kiribati.

And countries that are leading the HDI index include Norway(.944), Australia(.933) and

switzerland(.917).

Now what this implies is that people might be happy in their own capacity in indonesia, but one

lacgging factor as mentioned earlier is the low income and other factors such as literacy, life

expectancy, inequality and pverty all combined add up to the HDI. And keeping in mind that

indonesia is a developing country is no surprise that the more developed countries with high

incomes lead the tables and the lesser developed countries fall below.

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Is Indonesia developing or developed country?
Indonesia is a country which lies somewhat in between the status of developing and developed

countries. It has been classifies as NIC which is the short form for newly industrialized countries.

These countries are more advanced than most of the developing countries but don’t show signs

of full development so this is a slightly new category assigned to them. Some of the other

countries in similar status are South Africa, Mexico, China, Malaysia, Brazil, India, the

Philippines, Thailand, and Turkey. Starting from 2011 Indonesia started to receive huge

amounts of capital just after India and china but some factors still prevailed then and are also

present now which hindered the full utilization of the resources. Some of these unique

problems faced by it are:

1. Poverty

2. massive corruption

3. persecution of minorities

4. human rights abuses

5. unemployment

Indonesia is a country which is blessed with large number of natural resources just like Pakistan

but it has not fully utilized them and much of the profits generated by this country are taken

away by multinational countries. Northern America and Western Europe (service based

economies) are the economies which are developed in the true sense having GDP per capita of

20,000 $ and when we compare Indonesia we see that it’s not as developed as them.

We will look at some of the characteristics in detail to elaborate the developing status of

Indonesia:

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Level of living and productivity:
One of the indicators used is GDP per capita which s a rough indicator of standard of living.

There was a global

depression in 1930s so the

GDP fell a little and then it

was followed by an increase

in 1940s. If we look at the

western standards and if we

look at different countries across Asia it is revealed that Indonesia the standard of living has

improved over the years and there has been exceptionally high growth in the 20 th century.

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Some structural changes:

The most important changes in the history of Indonesia are the structural changes. If we look at

this diagram we see that before 1970s agriculture was most prevalent and most important and

was the single most prevalent sector of the economy. Starting from 1930s this country adopted

many policies to shift towards domestic production as has Pakistan done in its initial years. The

policy adopted was known as ISI which is the import substitution industrialization. Main

essence of this theme is to produce as much domestic goods as possible and then shift to the

external market if needed. We can say that still agriculture was mainly focused on despite the

efforts of government to promote industry and it was only after 1960s that actually a progress

was seen in the industrial sector.

Level of human capital:


Having the best and the most skilled human capital is necessary for any country if I wants to

progress. We look at the attainment of education of their people. This increased from as low as

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one year in 1950s to its double twenty years later that is in 1970s. There was more importance

started to given to primary level education and it became compulsory as well and much was

done to increase the staff members. The enrollment in these schools also started to show a

positive trend. The second measure of human capital is skills which are present in the people

and are given to them by training. Indonesians lack in certain skills such as:

1. Basic aptitude,

2. Mathematics skills,

3. English proficiency.

We can say that over the years the government of Indonesia has done a lot to improve the

education at primary level and has been quite successful but the results at secondary and

tertiary level have not been much good. Also their people lack certain skills which need to be

inculcated in them.

Inequality and poverty:

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We look at two indicators Gini index and percentage expenditure share and conclude that they

have changed only slightly. Until 1970s there has been a worsening effect in the inequality

while it has improved slightly in 1980s and onwards. But if we see overall we can say that

poverty has decreased over the years from 1970s and also economic growth is the main factor

responsible for reduction in poverty over the past two decade.

Colonial Impacts:
Indonesia was colonized by the Dutch people and at the time it was done it was highly opposed

by the people in those areas. But it was seen over the years that the colonies which were made

by them in the so called East Indies were not that bad but was actually profitable. The resources

extracted from the islands under their controls provided surplus for the years to come. In these

areas railroads and military installations of the Netherlands were built and this was due to by

the forced labor of Indonesians. But this cultivation system eventually failed due to several

reasons.

Millennium Developmental Goals: (MDGs)

Millennium Developmental goals are a set of eight goals which have been adopted by the
United Nations in the 2000 and these goals have been assigned specific targets each of which
refers to a problem whose solution needs to be achieved by 2015.

Following are the eight goals:

1. To eradicate extreme poverty and hunger


2. To achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development

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What is the status of Pakistan in achieving the MDGs by 2015?

Pakistan was amongst those 189 nations who agreed that these eight goals are very important
and need to be focused on so that the lives of people can be improved living in these countries.
This agreement was signed back in 2000 and now its 2014 so it is clear that less than a year is
left till the ending of the date for these goals to be achieved. But the irony for Pakistan is that it
is very far from achieving them and the growth in economy has not been much encouraging
either. This situation can be seen not only in Pakistan but also in all similar developing
countries like India and Bangladesh.

Recently a report was prepared by the Commonwealth foundation with the help of UN and it
basically focused on how much countries have been successful in achieving these goals, a
similar report was prepared for Pakistan and the facts were surprising because it had not kept
its commitments and lagged behind in a lot of situations.

If we look at the first goal which is to remove poverty we see that Pakistan is way behind in
achieving this objective. Throughout the county we see that people are deprived from basic
necessities including food clothing and shelter and a large number of people die each year
because of shortage of food. The beggars on the big streets of Pakistan are a very common
sight.

This table has been taken from the planning commission government of Pakistan’s report of
2013 and it throws light upon three indicators and whether they are on track or not. As we can
see that out of 3 of them 2 are not on track and are actually showing signs that they won’t be
achieved as per the target of 2015. Only the proportion of population below the calorie based
food plus non food poverty line has a latest national value of 12.4 which is well below the target
of 13 and this is the only good sign we can see. Another shocking statistic is the increase in the
employment to population ratio which according to report “Pakistan’s employment to

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population ratio increased from 27.1 percent in 2001/02 to 30.9 percent in 2010/11, making
the prospect of full employment by 2015 highly unlikely”.

In Pakistan the relation between growth and poverty is not clear. In the Ayub khan’s era when
Pakistan made a huge development and when it was referred to as a decade of development
there was still something which made it the controversial sixties. The reason was that the
wealth had accumulated in the hands of 21 businessmen and poverty had increased for rest of
the people. In today’s time the food prices are on a rise and majority of the people are not able
to afford these increasing prices.

Moving on to the next goal, it is to achieve universal primary education.

These are the three indicators

1. Net primary enrollment ratio


2. Completion/ survival Grade 1 to 5
3. Literacy rate

Pakistan is off track on all of these indicators. We see that majority of the kids here do not a get
a chance to go to school because they are not able to afford the high fees and also because
they feel that their kids might work and earn for them and sending them to school would be a
waste of time. Right now the literacy rate according to the report is 58 percent but this too
does not show the true facts because it is tilted more towards the male population and lesser
towards the female population.

70% Males

47% Females

Although if we see overall the literacy rate has increased since 2000 but not enough o match
the 88 % goal as mentioned in the MDGs. The inequality issues in regard to schooling of girls
and boys still needs to be solved.

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The third goal as stated by MDG is related to women empowerment and gender equality.
Previously women did not have much representation in majority of the sectors including the
legislative bodies of the government. But gradually after the passing of several bills this
situation has improved and from just few seats the number has increased to 60 seats for
women in National Assembly which is a major change. A lot of opportunities for women have
been created and awareness is on the rise about the importance of education for the women
and girls. Let’s look at the table to better understand how the issue of gender inequality is
being dealt in education sector.

Looking at this table it is clear that education sector needs to be pushed as to improve the
number of girls getting education because as discussed earlier the illiteracy rate has improved
but not as such for the women due to their unequal treatment. There are 5 indicators of which
only one is on the track while the rest 4 are off track and needs to be focused on. No doubt
these days’ women have more chances to go out and study but still it lacks behind when
compared to those opportunities created for men. So we look at issues faced by them in 3
major areas which are:

1. Education
2. Employment
3. Political participation

This goal is very important to achieve because in Pakistan if a woman is educated then she can
teach her kids that information and also it helps on reduced mortality rates but at the moment
despite a lot of efforts the situation for women has improved in only one sector that s their
representation in the national assembly. So we have now come to our fourth goal which is
reducing the mortality rate. If we look at the overall mortality rate in Pakistan for the children
under 5 years we see that it has actually decreased and this is a positive improvement toward
the achievement of the goal but there have also been many deteriorating features attached

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with it. These are the low level of hygiene and lack of government in providing clean drinking
water for the people.

Looking at this, we see that on a bright side that one of the indicators under this goal has
already been achieved but the remaining four are yet off track. But despite all this there has
been a lot of improvement on this goal. Cures of lot diseases have been found and children are
already given medicines and drops to protect them from any fatal illness. But still the
government has a long way to go in implementing policies in this regard. So if we look at the
first four goals then we see that Pakistan needs a lot of time still to achieve these goals fully but
not enough time is left till 2015 so from the face of it , this looks very difficult for Pakistan to
achieve MDGs in such a short span of time. Efforts are being made and one can just stay
hopeful that a miracle might happen and Pakistan might get on track towards achievement of
these goals.

Poverty in Indonesia:
Poverty throughout the world is a very important and major issue and when we talk about the
developing country Indonesia we see that there poverty has been a widespread issue for a very
long time but there has been a slight improvement in the recent years because now the figures
show better conditions. In this country the poverty is classified into two parts specifically which
are:

 Rural Poverty
 Urban Poverty

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But due to the diverse nature of this country the characteristics of poverty vary across different
culture and parts.

Years Poverty Figures (% of population)

1999 23.43

2005 15.97

2007 16.58

If we look at these figures we see that from 1999 till 2005 there has been a significant reduction
in the poverty across Indonesia as the figures suggest and from 2005 till 2007 there has been a
slight increase but overall the figures look convincing for the years to come. This all has been
because of the fact that it has seen small amount of growth in the recent years and this means
that there has been an improvement in the living standards of all the people be it in the sector
of education, health care or general well being of the citizens. PPP figures help a lot in this
regard and when we look at these figures it seems very promising because they have doubled
over the years for a decade till 2012.

Now there is another major issue which is the growing disparity between the rich and the poor.
The general perception is that all of the people are getting better in terms of their consumption
and living standards but when we look upon the figures it shows a contrast for instance the
World Bank reports show that the real consumption for the years 2003-2010 showed a growth
of about 4%. Now let’s look at individual figures for both rich and poor. For rich the
consumption grew by about 5.9 % while on the other hand for the poor the consumption grew
by mere amount of 1.3%. So we can conclude that rich are getting richer at a faster rate than
the poor are and we can say that there is an increasing disparity which sure is alarming.

GINI Coefficient and Lorenz curve:

Now Gini coefficient which coefficient tells us about the inequality prevailing Is a very
important measure and its value ranges between 0-1. Here 0 stands for perfect equality while
on the other hand 1 stand for perfect inequality. So the Indonesia’s figures which support this
inequality and disparity are its increase in the Gini coefficient which is still rather in line with
the figures with other developing countries. It was 0.38 in 2011 while only 0.29 in 2000.
Although these figures are not very different but even this slight change can be very dangerous

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if this trend continues and so the government needs to focus on the control of the disparity
which is being created in the different parts if the country. So we can say that Lorenz curve has
slightly shifted outward and the figures of different countries including Indonesia for different
years can be seen in this table taken from the World Bank:

We can see that as compared to the rest of the countries the figure for Indonesia’s gini
coefficient is not that bad. From these figures Iceland has a very low figure while Honduras has
large figure which shows inequality.

Some migration figures:

There have been reports of a lot of rural to urban migration by people and a whole informal
sector is present in the urban areas. Around three million people leave their homes and migrate
towards cities like Jakarta in search of better jobs, education and standards of living. Mostly
jobs that they get are not very high end rather are low level jobs like food sellers on the road
sides and this whole sector is very important for the country as it constitutes about 70% of the
GDP.

Because of all this poverty and other issues Indonesia moved towards a development plan for
the year 2005 to 2025 and it focuses on three major things:

1. Improving HR quality

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2. Science and technology development
3. Strengthening of economic competitiveness

Now if we look at the assumption of the Kuznets curve which says that inequality increases
during the early stages and then starts to decrease it kind of looks true for Indonesia as well
because as it has started to show growth its inequality as shown by the gini coefficient has
increased but we can be optimistic that as the growth continues this inequality would reduce.

So if people of this country migrate towards low end industries from agricultural jobs then
poverty reduces but it reduces by a greater amount if they get jobs in manufacturing industry.
But here we can see that still large amount of the labor is employed in agriculture and low end
service industries. The infrastructure is still very poor but its improving access to better health ,
education, sanitation and clean water .

Child labor:

Indonesia is one of the most populous countries in the world and its population is about 220
million but about 30 percent of the country’s population is below the age 15 of which means
that a lot of the people there are young and hence the issue of child labor also exists. Although
in Indonesia there has been growth in recent years and there has been a lot of effort towards
the improvement of education, still many children do not attend school and this figure has been
estimated to about 4 million and they enter the job market and are thus exploited at low wages
and extreme condition. This again is related to poverty and we can say that poor people are
forced to send their children to work in order to get themselves out of this trap but this creates
more problems for them in the long run. A National Action Committee was established and its
main aim was to eliminate poverty and to save the country from its damages. It’s a three phase
program which continues over a period of 30 years.

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Policies recommended:

According to World Bank child labor is a sign of poverty and hence if poverty is eliminated, child
labor can be eliminated as well. Hence in order to control this poverty the focus should be more
on the reduction of inequality between rich and poor. More spending must be directed towards
the poor and they should be given chances to work in the manufacturing industries rather than
just forcing them to work in lower end service sector which is basically the informal sector in

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the economy. More poor people should be given access to education and learning and training
programs at lower fees and incentives should be given for scholarships.

Second focus should be to get as many children in the schools as possible or dropout rates must
be reduced for this vocational training programs must be focused on, some sort of incentive
should be given to the parents that ensure them that their children would get good jobs after
getting out of them. Another way to get rid of this major issue can be to ban it which is a very
extreme way if doing this but can prove effective.

So in short to save Indonesia from entering into a poverty trap there must be policies adopted
by government which provide funds to the poor and tries to reduce the disparity between the
both because when this gap reduces totally then only a country would be able to progress.

POPULATION:-
Indonesia currently ranks #4 among the most densely populated countries in the world, after
China, India and U.S.A. Following is the exact figure along with the date the source was
accessed:

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SOURCE: http://www.census.gov/popclock/

For further information, check: http://worldpopulationreview.com/countries/indonesia-


population/

But if we observe the policies regarding population growth, they are considered as a
benchmark for other countries to follow. In the article from the “Journal of Development and
Social Transformation”1

1
(Barnwal)

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https://www.maxwell.syr.edu/uploadedFiles/moynihan/dst/barnwal6.pdf?n=8104 we can see
Indonesia successfully bringing down the fertility rate from nearly 6 (1970) to 2.59 (1990). The
article compared two developing countries: India and Indonesia on the basis of effective
population control program. Yet, Indonesia continues to stay in the top 10 most populous
countries in the world. So what seems to be the problem?

There can be 2 reasons through which we could understand the continuing population growth
increase:

1) Through the concept of Malthusian Population Trap and,


2) The Muslims view on childbirth control

Malthusian Population Trap

From the definition of Malthusian Population Trap, “the threshold population level anticipated
by Thomas Malthus (1766-1834) at which population increase was bound to stop because life-
sustaining resources, which increase at an arithmetic rate, would be insufficient to support
human population, which increase at a geometric rate,”2 the population level will stop growing
if the resources become limited and the families would have to live on subsistence level of
income. However, Thomas Malthus’ model ignores the effect of technological advancement
which would lead to higher per capita income and more life sustaining resources.

Indonesia also happens to be one of the rapidly growing developing countries in the world. One
of the reasons for reduced fertility rates in the past was due to proper implementation of
‘family planning program’, which also involved religious leaders.

“Every Indonesian child remembers the slogan: Two children are enough. It also introduced the
notion of a small, happy and prosperous family, equating it with a picture of a family with two
children.”3 http://www.thejakartapost.com/news/2009/08/05/indonesian-population-growth-
must-be-controlled-save-environment.html-0

But since the fall of New Order of Sukarno (The 2nd President of Indonesia), the population
controls have been diminishing and the government has not been effective since. Also adding
to the problem was the dynamic growth that took place in Indonesia during 2004 with domestic
consumption leading to higher economic growth (since it roughly contributes three-fourth of
Indonesia’s gross domestic product). In addition, The Jakarta Stock Exchange stood at 42% in

2
(Michael P.Todaro)
3
(The Jakarta Post, 2009)

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2004; a positive image for Indonesia. But also taking into account economic growth of 6.3% in
2007 which was growing to a 10-year high.

Therefore, brief and abrupt positive changes in Indonesia can be disregarded.

So we can see that technological or economic progress leads to larger population. The key
drivers that we can determine from the effective birth controlling programs is mass education,
improved education of women and awareness in use of modern contraceptives. 4

The Muslims view on childbirth control

The other reason why Indonesia is unable to curb the growth rates needs to be assessed on the
fact that the majority of its population is Muslim. The concept of abortion and strict controls
are frowned upon and, therefore not practiced on a large societal level. The only way policies
are seen working is when, both the government’s contribution and the citizens’ appeal to
participation becomes effective (over the entire community or large region) in bringing fertility
rates down. In the last years of Sukarno, there was widespread political instability and social
unrest that led to several deaths and divisions between groups. There is also a misconception
involved with larger population.

It is widely misunderstood that growing population will lead to more employment as the excess
number of workers for jobs will reduce the unemployment levels. But as Malthus suggested,
constraints on land and other necessities will lead to congestion, rapid propagation of fatal
diseases and overall unsanitary conditions. Without proper basic education across Indonesia,
high population growths will continue to adversely affect the economy, rather than a means to
reduce unemployment rates. It is not the insufficient number of labors in the job market; it is
the lack of necessary skills for a job (competency) that leads to higher unemployment.
Therefore, education plays a fundamental role in population control and prevention of various
diseases.

4
(William H. Frederick and Robert L. Worden, 1993)

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Urbanization in Indonesia

Urbanization in Indonesia expanded hugely taking after the nation's quick advancement in the
1970s. From that point forward, Indonesia has been confronting high urbanization rate
determined by provincial urban movement. In 1950, 15% of Indonesia's populace existed in
urban areas. In 1990, after 40 years, this number multiplied to 30%. Indonesia took just an
additional 20 years to build the urban populace to 44% as reported in 2010. The Central
Statistics Agency (BPS) reported that the average population density of Jakarta, the capital, had
escalated to more than 14,400 individuals for every square kilometer. BPS additionally
anticipated that the populace in Jakarta will achieve 11 million individuals in 2020 unless
measures are taken to control the population growth.
Socio-economic effects
Contrasted with the high power of in rural-urban relocation, most local governments in every
province are obliged take care of the raising demand of administrations and infrastructure as
far as lodging, transportation, and employment. At the point when these requests are
developing at a quicker rate than the accessibility of infrastructure, there is a 'socio-economic
dualism' which is perceptible inside urban society in Indonesia.

Socio-economic dualism depicts innovation and 'kampung (town)' society existing together in
urban territories. In Central Java, there are 14.1% or 2092500 individuals whose livelihoods are
underneath the poverty line. In West Nusa Tenggara, the quantity of poor individuals is
accounted for to be 23.7% out of the aggregate urban populace. Firman (2000) contends that
this socio-economic dualism delineates the spatial isolation and financial imbalance. As
indicated by Theil Index T, inequality in Indonesia urban communities expanded from 0.25 to
0.33 in the time of 1999 to 2002. Without availability of vocations catering the needs of rural-
urban migrants, the income differences in the rich and poor in urban zones will worsen. This
possibly prompts social friction, political strain and discrimination in areas for example,
healthcare and education. Without legitimate administration and actions, the consistent
convergence or rural-urban migration may pose a genuine danger to the infrastructure in the
urban communities. For instance; transportation, movement emergency costs Jakarta $1.4
billion a year because of activity blockage and public transportation which are direct results of
traffic congestion.

Implications
One of the ramifications of urbanization and development in Indonesia is the changing
demographics in the rural zones. As indicated by the United Nations Department of Economics

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and Social Affairs, populace aged in excess of 60 in Indonesia is expected to increase by 16% by
2050 which shows the quickly ageing population in Indonesia.

Also, there are more youngsters moving to urban areas looking for better work opportunities
now because of urbanization. This abandons countless ageing populace of Indonesia to live on
their own in the rural ranges. The primary source of income for the individuals in the rural
zones originates from farming and agriculture. Insights from the Agricultural Ministry
demonstrate that out of the 140 million agriculturists in the nation, 80% of them are aged 45 or
more. With men moving out of the rural territories in extensive amounts, there will be fewer
individuals taking over farming practices from the retiring farmers. It is sometimes associated
that this migration of the young people is due to the manual and hard work that is needed of
them to work away at farms. Likewise, the youth would prefer not to face the dangers of having
a terrible or bad harvest. This prompts a significant concern for the country in regards to the
agricultural industry. There is a high probability of a food crisis in the near future if production
levels are not expanded. Ageing agriculturists continue to work with their traditional and
manual systems for cultivating because of low skill and low educational levels. Production level
in the agricultural industry is very low as a result of this. VP Boediono cautioned that the
current levels of nourishment creation won't be sufficient to adjust the increasing population
even in the short/mid-term future.

An alternate issue of rapid urbanization is the fall in investments in the country's rural
infrastructure. There are plenteous investments in urbanization ventures. Population of
individuals living in urban zones is anticipated to increase by more than 65% by 2030. However,
after 1980, capital investments in rural developments started to decline. Transport frameworks
and streets are extremely critical types of foundation that assist in the improvement of rural
areas. Farmers require better streets and a more effective transport network in order to have
the capacity to reach bigger markets outside of their towns and villages. Studies demonstrate
that a large portion of the kabupaten streets, which make up to 72% of the street system, are in
poor condition. Additionally, the lack of sufficient investments in country's rural areas further
stresses the rate of migration of young people from villages to urban communities. The youth
doesn't have a stage for advancement in such territories where there are no exertions made to
enhance their ways of life.

Social and healthcare services in rural parts of Indonesia have also deteriorated with the fall in
investments in country's rural infrastructure. The aged don't have legitimate and affordable
healthcare services which is extremely vital for them given their age and occupation as farmers.
Statistics demonstrate that in East Kalimantan, the quantity of towns which have a clinic or a
hospital has diminished from 37 in 2005 to 33 in 2008. Additionally, the quantity of Puskemas
(Public Health Center) – the health center which is particularly focused to the lower pay families

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- in West Java, Central Java, and East Java and South and East Kalimantan have diminished from
222 in 2005 to 209 in 2008. Indonesia likewise experiences an absence of health awareness
experts, for example, specialists, doctors and nurses. The majority of them stay at urban zones
which has created a lack of medical caretakers in the rural areas. The destitute in rural regions
don't have a solid and effective healthcare framework to turn to in times of need.

Population Demographics of Indonesia

The number of inhabitants in Indonesia as indicated by the 2010 national census is 237.6
million, with 58% living on the island of Java, the world's most populated island. The recent
figure for Indonesia's population is shown in the table below, which is 249,865,631 in the year
2013.

Despite a genuinely compelling family planning program that has been set up since the 1967,
Indonesia's populace is anticipated to surpass USA and turn into the greatest after China and
India by 2043. For the decade finishing in 2010, Indonesia's populace growth was 1.49 percent.
Some say family planning ought to be revitalized focused around the 1967 project to prevent
Indonesia from turning into the world's third most populated nation, yet this point has
confronted an obstacle of religiously-based sentiment that to take after family planning is
identical to not being thankful to God.

Indonesia incorporates various ethnic, social, cultural and linguistic groups, some of which are
identified with one another. Since its independence, Indonesian (a type of Malay and official
national dialect) is the dialect of most written correspondence, training, government, education
and business. Numerous local ethnic dialects are the first dialect of most Indonesians and are
still vital to them.

Figure 1: Taken from worldbank.org showing trends of population growth, the life expectancy of Indonesia and economic performance indicators

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Ethnic groups
There are over of 300 ethnic groups in Indonesia. 95% of those are of Native Indonesian
heritage. Javanese is the greatest one with 100 million individuals (42%), followed after by
Sundanese who add up to about 40 million (15%).

Religions
Indonesia is the world's most populated Muslim majority nation, with very nearly 87.18% of
Indonesians proclaiming Muslim in the 2010 census. 9.87% of the populace is Christian (of
which more than 70% are Protestant), 1.69% are Hindu, 0.72% Buddhist, and 0.56 other. Most
Indonesian Hindus are Balinese and most Buddhists in advanced Indonesia are Tionghoa.

Languages
Indonesian is the offical dialect yet there are numerous diverse languages native to Indonesia.
As indicated by Ethnologue, there are as of now 737 living dialects, the most generally used
being Javanese dialects.

Various Chinese lingos, most noticeably Min Nan, are additionally spoken. Public utilization of
Chinese, particularly Chinese characters, was formally debilitated between around 1966 and
1998.

Literacy
Definition: age 15 and over and can read and write
Total population: 92.81%
male: 95.5%
female: 90.4% (2011 est.)

Education and training is not free; nonetheless, it is necessary for youngsters through to grade
9. Albeit around 92% of qualified kids are enlisted in elementary school, a much smaller rate
goes to full-time. Around 44% of secondary school-age kids go to junior high school, and a few
others of this age group go to professional or vocational schools.

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Life expectancy at birth, total (years)
Life expectancy at birth indicates the number of years a newborn infant would live if prevailing
patterns of mortality at the time of its birth were to stay the same throughout its life. Below is
the life expectancy rate of Indonesia in comparison to developing countries of East Asia &
Pacific over the years 2005 to 2012. As you can see, the lower middle income class of Indonesia
has comparatively lesser life expectancy compared with the rest of the population.

Figure 2: Taken from the World Bank, showing life expectancy trends compared to other
developing countries.

Figure 3: Taken from the World Bank showing various statistics of Indonesia's Population

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Retrieved from Australian National University Working papers No 2011/02, (JAN 2011):
https://crawford.anu.edu.au/acde/publications/publish/papers/wp2011/wp_econ_2011_02.pd
f

Health:
Since its commitment to the Millennium Development Goals, Indonesia has made great effort
to achieve the necessary targets especially in the areas of education and health care. As a
middle income developing nation, Indonesia has been one of the few from this category who
have achieved good results as a result of their policies. However, as a developing nation,
Indonesia is still plagued by many problems that hinder it’s capabilities to achieve an above
average health care system. Figure 1 shows key health indicators in Indonesia.

Figure 1.

The demographic and geographical layout of Indonesia also causes problems in


implementation of government plans. As a result the government practices a
decentralized layout for providing health care facilities. 33 provinces with over 500
municipalities each have their own health budget and facilities. These districts are all
Islands which span a distance equal to the width of USA. Indonesia also lies in territory
that is home to the world’s most active earthquake and volcano zone.

The health care system in Indonesia is private as well as public. Figure 2 shows the ownership of
hospitals across Indonesia.

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Figure 2

The above table shows that the private sector owns more health facilities compared to the
government. However the government has adopted a policy of improving existing facilities
rather than initiating new ones. The shift from primary to simple tertiary care has seen an
increase of more than 30% in government run hospitals from 2004-2014. Increase in per capita
income has also led to a rise in the demand for better and improved health care and the
government is trying to play its part in making decent healthcare available to the public.

The 2010 maternal mortality rate per 100,000 births for Indonesia is 240. This is compared with
228.6 in 2008 and 252.9 in 1990. The under 5 mortality rate, per 1,000 births is 41 and the
neonatal mortality as a percentage of under 5's mortality is 49

One of the major steps taken by the Indonesian government in this regard has been to initiate
the National Health Insurance Program by which the government aims to bring around 247
million people in the health insurance net by 2019. This will make the program the biggest in
the world.

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Low incomes, low education, cultural and geographical barriers have all constituted in the slow
growth rate of improved health care in Indonesia. As a developing country hit by severe
financial constraints, Indonesia has a lot to lose when it directs finances towards health care
rather than fulfilling other needs. However improved healthcare leads to better standards of
living which in turn will help the country achieve better overall results.

For a country of around 240 million, health care insurance seems like a dream but government
policies point towards a favorable outcome. There has been an increase in per capita health
expenditure over the last decade and health care now constitutes more of a percentage of the
total GDP than it used to. The current plan will involve low payments by low income earners.
Similarly, the employers and the wealthy will be paying a premium for the same insurance plan.
Health care spending as a percentage of GDP for different countries is shown in figure 3.

Figure 3.

The biggest hurdle in the way of this plan is the industry. The employers are reluctant to pay
insurance benefits for their employees. It must be noted that Indonesia is a developing nation

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and bureaucracy and corruption and major problems that plague development. The plan was
conceptualized in 2004 and was to be given a decade. However, it is 2014 and to date the plan
has not been entirely successful. Indonesia extended free health insurance to 48 percent of
its population on Jan. 1. By the time the system is fully implemented in 2019 it will cover
the whole country at an estimated cost of $15 billion a year – about $60 per Indonesian
citizen and 15 percent of the central government’s budget.

Traditionally, Indonesia has been known to spend a lot less on health care compared to
neighboring Malaysia and Thailand, but the National Health Insurance Program could put
Indonesia in the driving seat of high quality healthcare in the region. Figure 4 shows
comparison of healthcare facilities in Indonesia to countries at the same stage of
development along with developed nations.

Figure 4

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Medicine also comes under healthcare and the Indonesian governemnt spends around
$12 per capita per year on medicines. In the private sector, availability is largely left to
market forces, and is generally good. Since the 1990s Indonesia has gradually opened up
its pharmaceutical market to international trade. However, recent changes mean foreign
manufacturers that have no manufacturing operation in Indonesia currently face
regulatory uncertainty.

In the public sector most of the supply of medicines is obtained from the drug warehouse
operated by their District Health Office. District drug warehouses are supplied by multiple
public sector supply chains.

Surveys on expenditure on medicine as a percentage of total expenditure on health care


has shown that this figure has gone down by a large percentage over the last decade. This
is largely due to improvement in healthcare facilities that leads to a low requirement for
medicine. Another reason is the government policies on allowing foreign companies to
operate in Indonesia which has helped bring down the prices of medicine.

The human resources linked to the health care field are very low in Indonesia. Indonesia
has 25 health workers per 10,000 people, which meets the World Health Organization's
minimum of 23, but they tend to be concentrated in urban centers, leaving parts of the
archipelago without an adequate number of health personnel. There is in fact a shortage of
qualified personnel. Even if Indonesia is successful in arranging good facilities, the lack of
human resources may prove to be a major hindrance. Human resource is something that
cannot be bought. The government has to either invest in medical training and education
or to enforce favorable policies to attract qualified professionals from around the world
and specially the neighboring developing Asian nations.

Some recommendations include:

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Improving checks and balances over health departments of different districts. If the
government fails to do so then the end consumer may not be able to benefit from
government policies and subsidies as a result of corruption in these districts.

Promote private facilities as well as NGOs. With such a huge population the government
cannot expect to take on health care all on its own. Indonesia is the 4 th most populated
country in the world. With so many people it is a mere impossibility for the government to
work on its own. The government should however keep a check on these NGOs and
private healthcare facilities in order to curtail mismanagement of funds and exploitation.

The major challenges faced by the NHIP include fears by hospitals that they will not be
reimbursed, lack of information about the program to hospital staff, delayed payments by the
government and inadequate payments to doctors. All these challenges need to be faced before
the program can be completely implemented.

Education:
Education in Indonesia comes under the responsibility of the Ministry of Education and Culture
and the Ministry of Religious Affairs. The Indonesian education policy makes it mandatory for
all citizens to undertake nine years of education. These nine years are broken into:

1) Six years of elementary education


2) Three years of secondary education

(Figure 1 shows the break-up of education in Indonesia)

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The ministry of religious affairs takes control of all educational institutes giving Islamic
education.

The constitution of Indonesia notes that there are two types of education in Indonesia: Formal
and In-formal. Formal education is broken into Primary, Secondary and Tertiary levels. Like the
majority of countries, schools are either run by the government or the private sector.

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In Indonesia, the academic year begins in July and ends in June, and the official primary school
entrance age is 7. Indonesia has a total of 52,230,000 pupils enrolled in primary and secondary
education. Of these pupils, about 30,784,000 (59%) are enrolled in primary education. Figure 2
shows the highest level of education reached by youth ages 15-24 in Indonesia. Although youth
in this age group may still be in school and working towards their educational goals, it is notable
that approximately 1% of youth have no formal education and 7% of youth have attained at
most incomplete primary education, meaning that in total 8% of 15-24 year olds have not
completed primary education in Indonesia.

Figure 2

Figure 3 shows the progression in the Indonesian education system. In Indonesia, the gross
enrollment rate in primary education is 109% for both girls and boys combined. This number
falls to 91% in lower secondary, with a student transition rate to secondary school of 96%. The
primary net enrollment rate in Indonesia is 92% and the primary completion rate is 105%. Both
these indicators provide a sense of the progress a country is making towards universal primary
education -- a key UN Millennium Development Goal -- and, for Indonesia, suggest that the
country has yet to achieve universal primary education.

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Figure 3

Learning is measured through literacy rates. This is important since literacy is a major skill in
order to achieve higher levels of education. Compared to other countries, Indonesia ranks at
the 56 percentile in access and at the 73 percentile in learning. Figure 4 compares youth and
adult literacy rates. The graph shows that the literacy rate among the youth in Indonesia stands
at an exhilarating 99%. This figure is very large compared to the average literacy rate of youth
in middle income developing countries around the world.

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The year 2013 saw drastic changes in Indonesia’s education policy with more focus on religious
studies rather than science. According to the deputy minister for education, this move comes as
an effort to help students build character and moral ethics. These policies have come under
great criticism by many non-Muslims living in Indonesia as well as the UN. This was perhaps
done to please the largely Muslim population which was against the secular system of
education and preferred sending their kids to Islamic institutes rather than allegedly secularly
run government schools. Despite not being an Islamic state, Indonesia houses a population of
around 240 million out of which 88% are Muslims. With many of these Muslims pressing for
religious education – the government cannot ignore it. What the government can do is to focus

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on a curriculum that provides Islamic education along with hard science in order to keep a
check and balance on the religious aspect of education. Instead of going to private institutions,
people will therefore be inclined towards public education and the government can then
dictate the curriculum on the basis of what it feels is best for the future of the country.

Long since its inception in 1945, Indonesia has tried to incorporate a more secular style of
governance. It is perhaps this factor that has allowed Indonesia to achieve much more
development compared to most South Asian countries in its nearby region.

Indonesia’s economy has been strong recently, with 6 percent GDP growth reported last fall.
By removing science from its education system, it will undoubtedly impact the ability of its
citizens to compete in the future. A lack of scientific training and understanding will mean less
research and development, resulting in fewer and less significant technological advances.

Education plays a crucial role in society and is the underlying tool that enables a nation to
effectively compete on a global scale. It also helps to inform citizens of what to expect and
demand of their government, especially in open democratic societies. Ultimately, the proposed
deterioration of the curriculum’s integrity on such a massive scale is concerning as it may
transform into a tool of oppression by the Indonesian government. Indonesia faces a complex
problem on how to address the systemic weaknesses within its educational system. However,
reform in the way of omitting science from the classrooms appears likely to have lasting and
potentially very dangerous and very real negative implications.

TRADE

TRADE

Indonesia being the fifth most populated country in the world is a major producer of
agricultural products. Agriculture is very intensive at Islands of Java and Bali that account for 7
percent of Indonesia’s total land area. The reason is soils on these islands is fertile, major crops
grown as ranked in order include rice, corn, cassava, soybeans and peanuts.

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Figure 2Trade Dynamics Indonesia

World trade organization ranks Indonesia as 27th biggest exporting country in the world.
Indonesia’s share in Merchandise trade is given below. It indicates the economy contributes
0.97% of total share in exports and 0.99% of total share in imports. Its main trading partners are
located nearby that majorly include Japan, China, Singapore, Malaysia that is an evident that
the country has still not practiced diversification properly, it still relies on few trading partners.
Top 5 Major Export products by Indonesia includes Coal Briquettes (12%), Petroleum
Gas (9.3%), Palm Oil (8.3%), Crude Petroleum (5.9%), and Rubber (4.1%)
Top 5 Major Import products by Indonesia includes Refined Petroleum 15%, Crude
Petroleum (5.5%), Planes, Helicopters, and/or Spacecraft (2.4%), Vehicle Parts (1.8%),
and Cars (1.5%)

Figure 3Indonesia Share of Exports/Imports

Integration of Indonesian economy into world economy began in mid 1980’s under regime of
General Suharto, the process continued till 1990’s where the government reduced International

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trade barriers and opened the economy to foreign investment. The objective was to diversify
the economy away from oil exports. This happened due to 1980’s oil glut where the economy
was highly relying on oil exports, the pillar of economy was shifted towards into labour
intensive manufacturing which it had advantage of low wages. This gave a way to a number of
foreign investors importantly Chinese companies that evolved into immense conglomerates
later. Examples include Sinar Mas Group, Lie Mo tie, Liem Sio Liyong.

The labour intensive manufacturing secrtor thrived successfully and led to decline share of
agriculture in total economy. In 1985, the share of agriculture in the GDP stood at 23.2
percent.[63] By 2000, that share had fallen to 16.9 percent.

Figure below shows recent changes in percentage of output per sector.

Figure 4 Share ot Output per Sector

http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf

Overall Indonesia’s policy objectives have evolved over the years and now are more complex
than they were 25 years ago. They include diversification, this is to be done to provide more
employment opportunities available to rural areas, to move up to value added processing
chain. This is case to make sure agricultural exports earn higher in primary production. The
government has also aimed to protect farmer’s income aswell to make sure that they are
motivated towards higher productivity.

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Economic Freedom

Figure 5 Economic Freedom

According to Heritage, Indonesia’s economic Freedom score stands at 58.5 that makes the
economy 100th freest in the 2014 world Index. Its point has improved notably from last year by
1.6 points due to improvements in business freedom, investment freedom and financial
freedom. However Indonesia is still ranked at 21st out of 42 countries in Asia Pacific region.
Freedom from Autocratic rule of General Suharto since 1998 has lead to a widening range of
political freedoms, and participation in political process is high. Indonesia is now also a member
of G-20. Association of Southeast Asian Nations as well. It was President Susilo’s efforts that
tried addressing corruption and boost foreign investment.

Looking at trade policies it average tariff stoods at around 2.6 percent along with other import
licensing and quotas that further restrict trade. Indonesia’s infant industry argument is still
present and the country believes in making its industries more competitive. This is the reason
why it’s not very active in forming trade deals with its partners when compared to other
countries in the region.

Since 1980’s the country has maintained an open trade regime , however its policy towards
liberalization has varied a lot .depending on its economic situation. Various measures to restrict
imports mostly in agriculture and food products have been introduced.

Financial Sector

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Measures to check efficiency of a small economy include Banking Spread and Non Performing
Loans. Banking spread is calculated by the difference between lending rate minus the deposit
rate. Since Banks are the major players of the financial sector in small open economies, their
efficiency has a major impact on the overall economy. The graph below shows Banking spread
shrinking over the years and has stablised at around 6 percent.

Figure 6 Banking Spread Comparison, Indonesia and World, Indonesia in red, World in Grey

This indicates ratio of Non performing loans to Gross loans. This shows that they have fallen
considerably indicating that the economy is able to overcome efficiency as more people are
now able to pay back loan borrowed.

Figure 7 Non performing loans to Gross Loans

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http://www.tradingeconomics.com/indonesia/foreign-exchange-reserves

Prebish Singher Hypothesis

The hypothesis states that Primary products have fluctuating prices because of International price
fluctuations in them. Thus fluctuations in International prices leads to Exchange rate of fluctuating
country to fluctuate as well. This is the reason LDC’s who rely on agricultural exports have a managed
float, upper and lower bounds.

Primary products have inelastic demand that means a fall in price leads to a fall in Quantity demanded
as well. Low income elasticity of around 0.5 to 0.6, while manufactured goods have high income
elasticity, manufactured goods have high income elasticity.

Hypothesis says that Primary products price is falling, as LDC’s become richer they make demand more
manufactured goods, so flow of income from LDC’s to develop.

Test for Indonesia

 Instable Exchange rate


 Terms of trade would worsen
 Foreign Reserves Increasing or Not

Terms of Trade
1.22
1.21
1.2
1.19
1.18
1.17
1.16
1.15
1.14
1.13
1.12
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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Figure 8 Terms of Trade plotted on excel

Figure 9 IDR compared to US dollar 1991-2014

Figure 10 Foreign Exchange reserves

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Foreign Exchange Reserves in Indonesia increased to 111972.61 USD Million in
October of 2014 from 111164.46 USD Million in September of 2014. Foreign
Exchange Reserves in Indonesia averaged 61183.98 USD Million from 2000 until
2014, reaching an all time high of 124637.75 USD Million in August of 2011 and
a record low of 27404.30 USD Million in July of 2000. Foreign Exchange
Reserves in Indonesia is reported by the Bank Indonesia.

Conclusion and Recommendations:

Policy Recommendation

Indonesia needs to deal with its inadequate infrastructure and high costs before opening up
completely to world Economy. Otherwise, it will not be able to compete internationally and
remain an attractive market for trading partners. Also it must be forgotten that the domestic
market is big enough to support domestic producers, they must be protected and respective
support from government shall be given.

China seems to only hungry for Indonesian raw materials and energy, while gaining heavily
from imports to Indonesia. Also agreement between Japan and Indonesia been not successful
to Indonesian producers as they don’t meet the standard requirements of Japanese Industries
and consumers.

Indonesia ought to transform its disposition that the nation is not prepared for a more open
economy. Enhancing aggressiveness and economic integration are not totally unrelated;
actually they fortify one another. For one, a more open economy, particularly from
complementary exchange understandings, would stretch the business sector base and
opportunities for nearby makers. While Indonesia has an enormous potential business of 240
million individuals, its aggregate purchaser buying force is not as large as that of most created
markets. An outward looking exchange administration would encourage Indonesia taking part
all the more effectively in the worldwide and territorial creation system. Its inclusion is as of
now low.

It is evident that Indonesia needs to draw more investment from abroad as its foreign direct
Investment (FDI) is very low at less than 3 percent. On the other side Trade agreements would
increase Indonesia’s attractiveness as investment decision. Keeping low barriers to entry would
reduce it’s cost of production by allowing investors to move capital and intermediate goods.
Trade agreements would also increase Indonesia’s attractiveness as an investment destination.

Improving competitiveness goes side by side with competition. Higher competition would lead
to pressure on producers to work more efficiently as well. Also with an open economy it would
mean international competition as well.

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According to a recent investigation by the Indonesian corruption watch, corruption in the
Indonesian education department and system is rampant. This corruption is a direct hindrance
to the education system of Indonesia. This means that despite budgets allocated to education,
that money never makes it to the right hands. The future of Indonesia looks very promising but
this corruption could prove to be a major hurdle. The government needs to target this at the
core even if this means the removal of important ministers. The collective agenda of
Indonesians should be put forth the personal agenda of a few affluent people and corrupt
officials.

Another key recommendation is to improve the education of teachers who will be teaching at
government run schools. These teachers are the ones who come in direct contact with children.
In view of the recent non-secular reforms of the Ministry of Education, emphasis should
perhaps be placed on these teachers to improve the sense of morality of the children and
improve character building.

Emphasis should also be placed on privately run schools. Many private schools fall in the
category of Religious institutes which may end up preaching in different styles and this may in
turn upset different groups in the large population of Indonesia. The state needs to regulate the
teachings of these Islamic institutes to make sure that religious education is uniform and so that
it goes hand in hand with non-religious education.

The Indonesian government also needs to enforce a plan to spend more on medical
education and training. The government may also raise the salaries of medical personnel
in order to attract qualified personnel from nearby countries in order to tackle its
deficiency in human resources.

The NHIP is one of the major programs of the government. If the government succeeds
then by 2019 Indonesia will be home to around 247 million people with health insurance.
However, the Nation Health Insurance program goes hand in hand with improved

Indonesia: Term report


medicine, more qualified personnel and reduction in barriers from bureaucracy and
corruption.

Conclusion:
In short the future of Indonesia seems very bright and promising but for that all the
policies recommended must be followed and most importantly the disparity between rich
and the poor must be focused on. Better terms of trade and improved health care and
educational facilities are also needed if it aims to have a bright future.

References:
(n.d.). Retrieved from Indonesia Investments: http://www.indonesia-
investments.com/finance/macroeconomic-indicators/poverty/item301

(2014, May 3). Retrieved from The economist: http://www.economist.com/news/finance-and-


economics/21601550-poor-are-benefiting-relatively-little-indonesias-growth-muted-music

child labor in Indonesia . (n.d.). Retrieved from International Labor Organization:


http://www.ilo.org/jakarta/areasofwork/child-labour/lang--en/index.htm

Indonesia Overview. (2014, October 1). Retrieved from The world bank:
http://www.worldbank.org/en/country/indonesia/overview

UCW. (2012). understanding children's work. Retrieved from http://www.ucw-


project.org/Pages/bib_details.aspx?id=12298&Pag=0&Country=101

united states department of labor. (2013). Retrieved from unites states department of labor:
http://www.dol.gov/ilab/reports/child-labor/indonesia.htm

(n.d.). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/New_Order_%28Indonesia%29

(n.d.). Retrieved from http://en.wikipedia.org/wiki/Economy_of_Indonesia#Post_Suharto

(2009, August Wednesday). Retrieved November Sunday, 2014, from The Jakarta Post:
http://www.thejakartapost.com/news/2009/08/05/indonesian-population-growth-must-be-controlled-
save-environment.html-0

Barnwal, A. (n.d.). Success of the Indonesian Population Program: Lessons for India. Journal of
Development and Social Transformation , 43-49.

Michael P.Todaro, S. C. Economic Development, 11th Edition.

Indonesia: Term report


William H. Frederick and Robert L. Worden, e. (1993). Indonesia: A Country Study. Retrieved from
http://countrystudies.us/indonesia/

Additional reading website References:

www.transparency.org/content/download/4459/26786/file/Introduction_to_political_corruption.pdf

http://www.bloomberg.com/news/2014-01-27/indonesia-facing-populace-larger-than-u-s-revives-birth-
control.html

Retrieved from Australian National University Working papers No 2011/02, (JAN 2011):
https://crawford.anu.edu.au/acde/publications/publish/papers/wp2011/wp_econ_2011_02.pdf

Retrieved from The Jakarta Post (OCT 2011):


http://www.thejakartapost.com/news/2011/10/27/booming-population-spawns-urbanization-
problems-un.html

Retrieved from The World Bank (2014):


http://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS/countries/ID-4E-XN?display=graph

Retrieved from (17 January 2011) Indonesian Central Bureau of Statistics: Census 2010,

Retrieved from Trading economies (2014) http://www.tradingeconomics.com/indonesia/urban-


population-growth-annual-percent-wb-data.html

Retrieved from The World Factbook of Central Intelligence Agency:


https://www.cia.gov/library/publications/the-world-factbook/geos/id.html

(2014,19th March) Retrieved from Trade Policy in swing


http://www.eastasiaforum.org/2014/03/19/trade-policy-in-swing-indonesias-attitude-to-
liberalisation-and-the-tpp/
Indonesia Overview. (2014, October 1). Retrieved from The world bank:

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Indonesia: Term report

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