Introduction

Indonesia is the fourth most populated country and the largest ASEAN
(Association of South-East Asian Nations) country. Neighboring countries are
Papua New Guinea, East Timor, Malaysia, Singapore, the Philippines and Australia.
Indonesia consists of 26 provinces with over 300 ethic groups. Conflictions
between ethnic groups is a big concern for stability. Indonesia is characterized as
lower middle-income country in the world. According to "2008 Index of Economic
Freedom. Indonesia's economy is 53.9 percent free, is ranked as 119th freest
economy among 162 countries. Economic freedom ranking is based on the
following criteria: business freedom, trade freedom, fiscal freedom, government
size, monetary freedom, investment freedom, financial freedom, property rights,
freedom from corruption, labor freedom. Thus, there is strong linkage between
the criteria of economic freedom and economic growth. Industrial sector accounts
for 47.7 percent of GDP; service sector constitutes 39.9 percent of GDP and the
rest 12.4 percent of GDP is composed by agricultural sector (2007). Service sector
has been recently expanded via tourism industry. Indonesia's exports accounted
for $118.4 billion f.o.b. in 2007. Export products are mainly oil and gas, electrical
appliances, rubber, plywood and textiles which are mainly dispatched to Japan
(21.1 percent), USA (13.2 percent), Singapore (9.4 percent), South Korea (7.2
percent), and China (5.1 percent). Imports are in amount of $86.24 billion f.o.b.
(2007). Indonesia imports primarily machinery and equipment, chemicals, fuels,
foodstuffs from Singapore (29.6 percent), China (11.2 percent), Japan (8.8
percent), South Korea (5.3 percent), and Malaysia (4.8 percent), (2006 ).

MAIN BODY
Indonesia government has been applying an intervention policy aiming to sustain
growth. Government implemented a conservative fiscal policy in 1980s for oil
revenues and government expenditures; and the accumulated income from oil
exports were invested to agriculture and manufacturing infrastructure to strength
other exports like palm oil and textile. Oil prices decreased in 1985, that leaded
government to search for a new policy to enable trade, then government reduced
non-tariff barriers; foreign investment was facilitated. Given the reduction in oil
prices, currency had been devaluated so as to increase profits of exports. Thus,
non-oil products became more attractive, government manipulated tax by
increasing non-oil tax rate. According to 2008 Index of Economic Freedom, state-
owned enterprises are assessed to account for approximately 40 percent of GDP.
This show reveals that Indonesian government undertakes the business activities
to a significant extent. After crisis, many institutions and economists have been
pessimistic about Indonesia's economy. As it is illustrated in the graph below,
Indonesia has surpassed IMF's expectations for growth. And the country achieved
its peak growth rate with 6.1 percent in 11 years after 1997 crisis. The main forces
that stimulate growth can be characterized as exports, foreign direct investment
and government policies, which are below explained in detail. Indonesia's
geographic location is very appropriate for the expansion of trade. Exports have
been one of the main drivers of growth. The country possesses rich reserves as of
crude oil, gas, coal, copper, palm oil, gold and silver. Recently, Indonesia has
become second largest producer of palm oil in the world. Due to boomed
demand, government recently doubled the tax on palm oil exports. This enables
to receive higher tax revenues which can be allocated to other areas in order to
sustain growth. As it is demonstrated in graph below, Indonesian exports are well
diversified into different sectors.

CONCLUSION
This case allows Indonesia to be able to be flexible in terms of offsetting the
declines in exports of one specific sector with increasing the exports amount in
another sector. Indonesia took the advantage of its oil reserves to induce
economic growth and then the yield has been transferred to diversify into
manufacturing sector. Manufacturing industry contributed to GDP by 3.5 percent
in 2003.
 REFERENCES

Source: BPS-Statistics Indonesia,

http://www.bps.go.id/releases/Monthly_Exports_Imports_Press_Releases/English
/

[1]See: https://www.cia.gov/library/publications/the-world-
factbook/geos/id.html,
http://www.economist.com/countries/Indonesia/profile.cfm?folder=Profile-
FactSheet

[2]See 2008 Index of Economic Freedom Report,

http://www.heritage.org/research/features/index/country.cfm?id=Indonesia

[3] See Antara News, http://www.antara.co.id/en/arc/2008/3/25/government-

raises-cpo-export-tax-by-20-pct/