Weighing Indonesia's Developmental Pathway
Christopher Clayton
04/01/2012
Words: 5030
Introduction
In industry, Indonesia has kept basic manufacturing capabilities stable, in spite of the 1997 Asian Financial Crisis and some smaller slumps. However it struggled with hi-tech sectors, such as aerospace infrastructure. Mining has served certain regions with economic benefits, but can have a disproportionate impact.
Oil serves as a major example of a product whose import and export dynamics have changed unfavorably due to supply and policy issues, and lack of investment. This left Indonesia with an even greater need to restructure. Palm oil has undergone changes in economic strategy as well, but has also generated unique controversy due to the forest and peatland destruction that it creates. Logistics continues to be a trade and development problem due to protections, regulations and inefficiency.
The government has tried various ways of promoting small and medium enterprises (SMEs) and trade through loans and tax decreases, even if not always with complete success, but at the same time has promoted state-owned enterprises (SOEs) most. Trade has hit stalling points due to the logistics sector. At the same time Indonesia has found consistent strength in natural resource exports.
Pursuing Aerospace
Indonesia has held steady in manufacturing development, with 39.1% of the economy in manufacturing in 1990 to 44.0% in 2004, however it did decrease from 45.9% in 2000 (Amri, Narjoko, 2007:49). The proportion of services also slightly decreased from 41.5% to 41.4%, but this was also from 38.5% in 2000. The effects of the Asian Financial Crisis become apparent in these terms, but the nation sustained these sectors in general. Manufacturing held a 12% growth rate by 1996, but then slowed and contracted to -11.4% in 1998 (Thee, 435). It maintained positive growth afterwards in spite of a growth rate decrease in 2005 due to higher fuel prices. Compared to other Association of Southeast Asian Nations (ASEAN) countries and China, goods and services exports held a lower percentage of GDP at 31% from 2004 to 2008, but grew by 11%, improving from 4.6% from 2000 to 2004 (Basri, Rahardja, 88-89). In these ways the manufacturing sector in general has been resilient.
However, in skill-intensive products, Indonesia only held technology-related exports at 20.7% of its total in 2005, even though this was a large improvement from 5.1% in 1990 (Amri, Narjoko, 2007:52). Its immediate ASEAN neighbors, Malaysia, Singapore and Thailand, grew their proportion from 47.5% to 56.0%, 46.5% to 68.2% and 14.4% to 35.2%. Even though Indonesia is the largest country in the region, making its gains per percent more significant, it still continued to exude a comparative advantage in unskilled labor, which only decreased by 2.2% to 47.5% during this period. It also grew at first, from 49.7% to 54.1% between 1990 and 1995, before it began to decrease.
Aerospace has been a particular hi-tech manufacturing concern. In contrast to the size of other sectors and more basic developmental concerns, the government intensified its airplane manufacturing program in the 1990’s as part of a strategic development policy (Thee, 345). It also continued to protect the industry. By 1996, Industri Pesawat Terbang Nusantara (IPTN) began co-production of the military version of CN-235 with four Australian aviation firms. However, the SOE had already used up $1.2b on the project since the 1980’s and was running at a loss (Williams, 1996). In spite of this it also accelerated development of N-2130, a passenger jet, at an estimated cost of $2.56b, to schedule its release for 2004 (Walters, 1996). By 1998 problems came to a head due to the Asian Financial Crisis, leading to the threat of cancellation of a $2b 130-seat jet materially supplied by British firms (Sheridan, 1998). The International Monetary Fund (IMF) also ceased funding IPTN, leading to the cancellation of the N-250, even though its prototype successfully flew by 1995 and despite 200 orders claimed (Xinhua, 2004). By 2003 the government began restructuring PT Dirgantara Indonesia (PTDI) after long-standing difficulty marketing and selling the CN-235 beyond domestic firms and the military (Jakarta Post 2003).
However, by 2004 the private sector in the form of the Islamic Development Bank (IDB) began negotiations to fund PTDI (Hakim, 2004). PTDI also began negotiations to build a 19-seat turboprop, N-219, with Malaysian companies participating, but still had issues gaining $100m from banks for its business plans due to weak financial performance (Sobie, 2004). The aerospace sector still had struggles but continued to progress. By 2006 Japan met with Indonesia and Taiwan over potentially co-constructing passenger aircraft (Kyodo News Service, 2006). PTDI continued to receive intra-governmental support with a Rp 935b loan from Bank Negara Indonesia (BNI) and Bank Rakyat Indonesia (BRI) for military NAS-332 helicopters (Grevatt, 2008). By 2011 Indonesia signed an agreement with South Korea to fund 20% ($10m) of its KF-X fighter jet project and to contribute 30 researchers in exchange for fifty of the aircrafts (Young-jin, 2011). Further, PTDI entered into negotiations to produce some of Airbus Military’s C-295 airframes, while it desired Indonesia’s military to purchase nine C-295s (Leithen, 2011). PTDI also entered into negotiations to market and sell C-295s for customers in the Asian region. Airbus Military had already transferred production of C212-400 to PTDI and it had built one for a Thai customer by June 2011.
Indonesia’s growth in the aerospace industry has coincided with its strengthening hi-tech exports. However it did have clear struggles initially. Given that much of the difficult period included a government-centered economy and policies against greater liberalization until the 1990’s, balanced policy consideration such as allowing for more privatization and joint projects did not take place. SOEs also continue to dominate the field, so the role of large private companies or SMEs in this sector could still receive greater government attention.
This is especially apparent in that aerospace SOEs still struggled with finances into the 2000’s. Therefore smaller, private firms that could generate money in other ways besides largely through taxes could have taken on some of the operations, and made production segmented and more efficient. The government also could have worked to develop unskilled labor to reduce its proportion of the economy in other ways to make the process into hi-tech smoother.
Disproportionate Regional Mining
Some regions have continued to hold mining as a significant proportion of their economy, i.e. mining made up a significant portion of their per capita GDP into 2002. In 1983 Rp, examples include Aceh, Riau, East Kalimantan and Papua, at Rp 1,418,800 per capita with mining versus 1,136,100 without, 2,734,600 versus 1,354,100, 4,147,700 versus 2,790,300, and 1,160,600 versus 491,200 (Resosudarmo, Vidyattama, 2006:35). An urban area without mining such as Jakarta stood at Rp 2,603,800 per capita. As can be seen, even with mining disregarded a region can have high GDP per capita such as East Kalimantan, but in such regions the loss of mining activity would still greatly impact it. It is proportional to an extent in that there are only some provinces that intensively mine, but the government could consider addressing economic diversity.
At the same time it is natural that mining has become important due to large reserves, such as how East Kalimantan contains 35% of the nation’s coal (Fatah, 2008:86). Even so if it makes a disproportionate impact on a region’s GDP per capita, balancing this by developing other sectors of the regional economy should be considered. The boom and bust nature of the industry, as well as a potentially higher variance in GDP between families due to those near coal roads, certainly lends credence to this (Fatah, 2008:86).
Natural resources such as coal, palm oil and copper have in part helped Indonesia resist global crises, such as its sustained average of 6.1% GDP growth in 2008 (Basri, Rahardja, 2010:78). In 2010 such goods accounted for 50% of exports overall (Basri, Rahardja, 2010:89). At the same time, however, it could indicate a need for greater technological and other developments. Skills-based industries and services in general should ultimately provide growth such that heightening or slackening natural resource activity can be done strategically. This also ties into preventing potential disasters for communities which cannot afford a downturn in that sector due to reliance.
Slackening Crude Oil Flow
Oil represents a driving part of Indonesia’s shifting policies on trade, and oil patterns have also affected other commodities as well. The decline of oil prices from 1982 to 1985 first prompted trade reform, as the GDP slowed to 4% growth and government revenue fell (Widodo, 2006:165). Oil price decline from 1986 to 1988 also partly drove a fall in tariffs and greater privatization, because high but inefficient protected growth during the 1973 to 1982 oil boom gave out. Oil and gas continued to fall after 1982 until it only composed 11% of activity in non-oil and –gas manufacturing in 2002 (Thee, 2006:345). The industry slowed until contraction in 2004 and 2005 at a -1.9% to -5.3% growth rate after recovering from 2001’s -6.2% rate, versus general manufacturing’s improvement to 6.4% in 2004 from 5.3% between 2002 and 2003, even though its rate slowed in 2005 to 4.6%. This is in contrast to oil resisting crises better in 1998 to 1999 when its rate increased from 3.7% to 6.8%, versus general manufacturing’s -11.4% to 3.9%. However at the same time oil’s rate fell initially in 1997 to -2.0%, and general manufacturing remained safe for the time at 5.3%.
Indonesia declined into becoming a net oil importer in spite of attempts to reverse this. It was a net oil exporter in 1997 with 570m barrels produced in 1995 to 270m barrels in domestic demand (Praginanto, 1997). However it was also a net fuel importer. Foreign countries pumped 95% of the oil, and fuel production was opened to privatization instead of remaining operated solely by PT Pertamina, but still the government planned for creating a fuel-exporting economy. During 1998 Indonesia made an effort to reduce its June oil production from 1.33m barrels per day (bpd) to 1.28m bpd to save maintenance costs on older fields (Bisnis Indonesia, 1998). For the 1999/2000 fiscal year’s first semester, Indonesia managed to increase production to 1.48m bpd but with a projected reduction to 1.4m bpd for semester two (Xinhua, 1999). However by mid-2000 it was only producing 1.3m bpd, below OPEC’s 1.317m bpd quota (Richardson, 2000). This increased to a quota of 1.36m bpd as part of OPEC’s attempts to stave a world supply crisis, but production remained level due to oil field exhaustion and the expense of finding new fields (Straits Times, 2000; Praginanto, 2000). Lack of incentives in 2002 led to a loss of $1b in oil and gas exploration investments when the government desired greater oil output, with a proposed 65/35 revenue split between government and investors (Kurniawan, 2002). However in 2003 the industry had relatively improved with seventeen potential oil and gas contracts, compared to one in 2002 and twenty-nine in 1997 (Wulandari, 2003). Even so Indonesia could not meet OPEC’s quota of 1.32m bpd with 1.1m bpd. It also failed to meet its own projection of 1.27m bpd in this way, but the government created BP Migas to oversee PT Pertamina’s bureaucracy in order to help attract investors (Wayne, 2004). It also tried to liberalize the industry in other ways such as proposing an investment bill but domestic downstream producers claimed they would not be able to compete (Suryana, 2003). Further three U.S. and three Norse companies pulled out of operation by first quarter 2004 in spite of greater profit sharing provisions and other incentives from a 2001 law. Indonesia’s main accessible fields were used up as well, and Exxon Mobil refused to pump oil at Cepu citing high existing market supply, which its exclusive drilling contract allowed. Foreign companies in general also continued to pump oil in the majority. Indonesia began importing more petroleum-based products and had in fact become a net importer of oil (Iwamoto, 2004; Yokei, 2007).
However, by 2007 Exxon Mobil worked with Pertamina to develop twelve oil wells. Chevron also began to help develop South Sumatra with $700m, and had become a 50% share-holder of total crude oil output. This was still high for a foreign company’s share, but better progress was possible. Even so output had fallen to 884,000 bpd of crude oil in 2006, and to 820,000 bpd by mid-2007 (Hari, 2007). Total oil imports for 2006 also surged from 5.99m bpd in the first quarter to an average of 20.51m bpd for the next three quarters, for an overall average of 16.88m bpd and a variance of 8.05m bpd between quarters. The industry produced 850,000 bpd by 2008 and still faced a need for investors, and the government decided to end OPEC membership (Soeriaatmadja, 2008). Oil production had, at least, roughly leveled. Production marginally improved to 949,138 bpd in 2009 but fell short of the target of 960,000 bpd (Nugraha, 2010). Production continued to improve to 965,000 bpd in first quarter 2010 but fell to 954,000 bpd overall, falling short of the same 960,000 bpd target (Xinhua, 2011; Noviyanda, 2010). However PT Pertamina and Petrochina planned to increase oil production in three Bojonegoro plants in 2011. Nigeria also planned to invest in the construction of three refineries in Indonesia and to sell its own crude oil to PT Pertamina (Alike, 2011).
The periods 1995-2001 and 2001-2004 experienced tariff reductions across manufacturing sectors at an average of -45.9% and -31.3% (Widodo, 2006:169). A proportion of this can be ascribed to the Asian Financial Crisis and associated world oil supply problems, and Indonesia’s becoming of a net oil importer afterwards, as in 1997 oil was 20% of total exports (Praginanto, 1997). The country had to make up for the loss of oil revenue through freer trade policies.
Besides tariff reductions, which were also part of liberalization efforts in general, the post-reform government did attempt to make a more investment-friendly atmosphere by providing incentives and by routing out SOE corruption, albeit after problems had worsened. The measures did not help immediately and issues of over-reliance on foreign oil drillers, such as allowing them to do the vast majority of drilling and also granting them exclusive contracts, hurt the balance of trade. Indonesia could have negotiated for better terms, and made other kinds of deals to gain knowledge to develop domestic oil infrastructure. These issues were on top of economic activity increases such as rising domestic fuel consumption, which further helped push the need for imports.
At the same time domestic companies claimed a lack of preparedness to produce downstream in direct competition in opposition to a bill to open the sector further. The government could not balance domestic and foreign interests, and tended to receive economically destructive results because of over-liberalizing in some ways. However Indonesia adapted as much as possible later by forming new deals with various countries to stave large production falls and to build refineries. As this took shape, though, it also experienced a relatively volatile oil import spike in 2006.
Palm Oil Production and Controversy
Palm oil, used in a variety of finished goods such as cooking oil and chocolate, made up 6.9% of Indonesia’s exports by 2007 at US $7.8b (Rifin, 2010:174). Malaysia and Indonesia also produced 87% of the world’s supply, Indonesia at 18.3m tons and Malaysia at 17.4m. They also exported the majority of their output, at 13.3m tons and 13.7m tons. It represents another commodity important to the Indonesian economy, and trade policy stances have also shifted in regard to it, just like with oil.
At the end of 1997 Indonesia planned to ban palm oil as an export for the first quarter of 1998 (Deutsche Presse-Agentur, 1997). Indonesia took the stance of satisfying domestic cooking oil needs through local base ingredient supplies. However, earlier in the year it had also lifted a ban on investment in the industry in regard to eastern Indonesia (Deutsche Presse-Agentur, 1997). In this way the government was planning on developing the industry in other ways in spite of the export ban. This came at the condition of allowing small landowner participation. Malaysian business in particular had been demanding for the opening up of investment.
By March 2006, the government entertained plans for China Development Bank to turn a forested area in Kalimantan into a palm oil plantation (Richardson, 2006). This involved a proposed US $8b financial package involving 1.8m hectares of land. Detractors cited the fact that Indonesia had already cleared land which never ended up developed, that unproductive palm oil plantations already existed and that the land was not well-suited to such activity. Further, China could stand to gain more raw wood as part of the deal even if the land did not develop, and the military could land a lucrative protection job. By October 2007, Indonesia received investment flow for biofuel plants (Yokei, 2007). This included an estimated 2t yen from Mitsui & Co. and Itochu Corp. Sinar Mas Group and CNOOC collaborated to build various plants at $5.5b. Cargill Inc. and Archer Daniels Midland Co. planned to build plants as well. PT Medco Energy International’s new domestic production facilities made $17b for the first half of the year. However the destruction of timbre was still a problem, especially local farmers using mass-burning strategies, generating air pollution.
At the end of 2006, Indonesia and Malaysia produced about the same amount of palm oil, 15m tons (Ismail, 2007). As seen in the form of 2007’s results, Indonesia was poised to take the lead in production. However, in November 2008, Indonesia admitted to missing its export target for the year by 1m tons at 13m tons, blaming the weak world economy (Xinhua, 2008). It also expected a total income of $9.4b out of a $10b target. In this way Indonesia can have real issues with reliance on raw material exports as an economic strategy. Global demand had decreased for that particular commodity, forcing Malaysia and Indonesia to agree to cut their production targets for the next year (Adamrah, 2008). Indonesia planned to cut 75,000 tons, and Malaysia 500,000 to 600,000 tons. However they also agreed to re-plant trees, addressing some standing environmental concerns. It turned out that for 2009, Malaysia’s production dipped to 17.6m tons and then to 17m for 2010, while Indonesia’s production increased overall during the period, giving Indonesia a continued economic edge in this regard (Ching, 2011). At the end of 2011, Indonesia produced about 27m tons of palm oil (IndexMundi, 2011). In comparison, Malaysia produced 18.9m (Ching, 2012). In the fourth quarter of 2011, refined palm oil products made up 56% of Indonesia’ palm oil exports, versus 40% in 2010, representing a turn in economic strategy (Teo, 2012). This higher-level manufacturing initiative was promoted by lowering export taxes for refined goods relative to export taxes on raw palm oil.
In May 2010 Indonesia agreed to a Norse $1b incentive to not clear new lands for plantation use, to be paid in installments (Allard, 2010). By October 2010, NGOs and Western critics spoke out enough that a joint Indonesia-Malaysia council became a possible strategy for addressing environmental issues (Ismail, 2010). Indonesia and Malaysia agreed to help develop palm oil as renewable energy in November 2010 after talks with the European Union and NGOs (Antara, 2010). However in spite of such international pressure and dialogue, at the end of 2010 the heightening danger presented by production was made apparent when the proportion of converted peatland to untouched land reached 1/5 (ENDS Report, 2011). Nestle successfully made Golden Agri-Resources agree to stop clearing forest and peatland for production in February 2011 (ENDS Report, 2011). Nestle also created new sourcing policies for its suppliers in general, including requirements to follow regulations and to obtain permission from local communities. Further, the Indonesian government created legal mechanisms for its Indonesia Sustainable Palm Oil (ISPO) initiative throughout 2011 under the Indonesia Palm Oil Commission, with enforcement scheduled for 2012 (New Straits Times, 2011). This even exerted regulatory power over Malaysia because estates there were made to begin applying for ISPO certificates beginning in January 2012 to have sustainable product standing. At the same time Malaysian estates did not want to cooperate if demand for sustainable oil was not high enough (Schonhardt, 2011). This had been taking place, driving down prices for such goods, alongside discouragement from receipting, tracking, handling and usage complexity. Illegal peat swamp fires created by companies in Sumatra in March 2012 created an environmental crisis (Marks, 2012). This took place in the Tripa forest, which sparked especial concern because of its concentrated orangutan population.
While palm oil has generated much Indonesian economic activity, it has created many environmental concerns as well. Indonesia has addressed this in different ways, and even jointly with its direct production competitor, but issues still remain and crises occur. It has taken correct steps such as exploring sustainable production, but companies must take more initiative and the government must consistently enforce this strategy. Palm oil also isn’t necessarily reliable as a money-maker in terms of exports due to demand shifts, pressing the need for alternate economic strategies such as diversifying regional economies.
Transport Bottlenecks
Logistics issues have acted as a barrier to economic processes in Indonesia. In one example, in 2004 the state shipyard companies PT PAL Indonesia and PT Dok & Perkapalan Kodja Bahari (DKB) lost revenue due to foreign competition and lack of requirements for ship operators to buy local ships (Witular, 2004). They also turned to foreign shipyards for soft loans as the government did not provide any to aid shipbuilding. PAL declined from a Rp 906b revenue in 2002 to Rp 735b, and DKB carried Rp 2t in debt. Thus in this example the government actually did not protect the industry in certain ways when it was needed. Efficiency issues in 2006 included congested highways and ports, and there were a lack of public funds to address these issues due to continued effects of the Asian Financial Crisis (Thee, 2006:346).
By 2010 the government considered liberal investment policy by scheduling half of a $140b road, seaport and airport infrastructure package to be paid by foreign investment in order to make it affordable (Lee, 2010). Continued efficiency problems meant that in 2012, logistics accounted for 30% of business expenses, versus 12% in China (Singh, 2012). The cost of exporting goods is also estimated at 14-25% (Tongzon, 2012:8). It is important for this sector to improve its efficiency because by 2006 the services sector, logistics included, became 50% of Indonesia’s economic output. The issue of protectionism still exists, and the balance tips towards over-protectionism overall as there is a 49% equity cap for foreign interests, foreign-registered ships may not operate between domestic ports and there are a number of regulatory agencies (Tongzon, 2012:11-13). This has led to higher costs and inefficiency that could be improved through foreign carriers with their contributions in technology and skill, and Indonesia could negotiate with them while keeping certain protections in place.
The government has continually faced issues in how to best balance protecting the logistics industry versus allowing foreign competition and funding. In terms of the state of the industry now, the government could open it to more foreign operations to make up for a lack of efficiency in local operations, until they gain more capabilities. Cutting costs and increasing efficiency at the sacrifice of some local logistics activity would aid the development of other sectors immediately.
Towards Robust SME Activity
Conglomerates now look to innovative ways of conducting business, such as different styles of management, and focus on fewer kinds of commodities (Nozawa, 2012). However sometimes private conglomerates can successfully command power across many kinds of services. For example, in media, Bhakti’s core company PT Global Mediacom controlled 40% of the television network market, and PT MNC Sky Vision controlled 80% of the satellite broadcast market as of February 2012 (Kagda, 2006).
Instead of receiving support from the executive branch, SOEs now gain it from a stronger legislature (Fukuoka, 2012:95). The legislature favors SOEs over other forms of business through the Dewan Perwakilan Rakyat (DPR). This keeps particular money-makers for governmental businessmen in primary favor as the DPR sees fit, even though the body is guided by multiple interests now, in contrast to the pre-reformation executive branch which narrowly promoted a selection of SOEs.
Entrepreneurs now support parties beyond Golkar and can do so freely, but avoid the judiciary due to corruption. Other regulatory bodies such as Bank Indonesia (BI) and Komisi Pengawas Persaingan Usaha (KPPU) can exhibit similar features (Fukuoka, 2012:87-88). Problems such as these have led the World Bank to rank Indonesia low in business processes such as the ease of starting businesses and the enforcement of contracts. On the other hand, in 2011 a BBC World Service poll ranked Indonesia high in entrepreneurship friendliness in terms of the possibilities of innovation in spite of high regulations and that only 0.2% of workers were entrepreneurs (Schonhardt, 2011).
These issues have hurt Indonesia before, such as in 2002 when Indonesia had been experiencing a loss of $10b in foreign investment per year since 1998 due to uncertainty in business contract enforcement (Suryana, 2004). In 2010 CastleAsia Consulting’s founder also acknowledged the issues with corruption and slow bureaucratic processes which have made business start-ups difficult, in spite of some success in combatting corruption (International Herald Tribune, 2010).
SMEs have also received government attention in various ways as they have grown. Before government change, for example, Indonesia’s national banks offered Rp 3b in capital loans at 17% rates, compared to 25-35% standards (Jakarta Post, 1997). In 2002 SMEs grew to Rp 11.4t, prompting increased micro-lending, such as BRI increasing its total SME credit proportion from 84.3% in December 2001 to 89.65% in June 2002 (Suryana, 2002). This was done despite involving extra expenses associated with micro-lending, such as technical and administrative skilled work. A 2004 SME loan package that involved SOE funds as collateral reviewed the results from then, because in that 2002 period, SMEs had access to Rp 42t in credit, but SMEs themselves did not use it all, as it turned out (Wulandari, 2002).
In 2003 BRI also suffered from a large general loan fraud issue (Witular, 2003). It involved Rp 1.7t under a state corporate structure that did not require approval by the board of directors for loan provision. The government also offered Rp 6t in general tax incentives, but businesses still demanded further incentives and wanted more luxury tax-exempt commodities in addition to the forty-five offered (Purnomo, 2003).
In Indonesia’s economy, there are multiple business types to consider. However the legislature has only promoted SOEs for the most part, even though private large businesses and SMEs have clear economic power. SMEs actually made up 40% of Chinese and Southeast Asian economic activity in 2011 (This Day, 2011).
The legislature should consider taking a balanced approach towards business promotion in order to provide support to other economic entities, as the legislature carries more power compared to the executive branch. It could also aid the judiciary and regulatory bodies towards creating reliable resolution dispute channels and balanced economic oversight of business processes. Banks could also consider targeted, smaller loans towards specific industries and business sizes to ensure complete credit absorption. For tax incentives the government can certainly use them to stimulate growth depending on economic conditions, but must balance this between business demand for them and potential tax revenue loss.
Ultimately, private business also cannot rely on incentives as they must in the first place create quality and innovative products to offer within a mixed economy context. The government could focus on this by specifically decreasing regulations for SMEs and targeting aid to innovative start-ups.
The profitability of SOEs is also still questionable. As of first-quarter 2012, twenty-three SOEs’ net profits were Rp -3.2t, from an income of 123.93t (Bisnis Jabar, 2012). PT PAL in particular lost 1.323t, and PT Merpati Nusantara Airlines and PTDI lost 778.649b and 287.37b. At the same time SOEs can be capable of profit, as indicative of PT Pertamina’s 2010 financial report, showing a net income of Rp 16.776t for 2010 and 16.203t for 2009 (PT Pertamina, 2010:10).
Conclusion
Across a variety of industries, Indonesia has faced the issue of liberalizing too much given certain economic contexts, such as how too many oil-drilling rights were given to foreign companies. Indonesia could have instead gained technology or skills through other deals to help develop domestic infrastructure while balancing domestic and foreign access as effectively as possible through negotiations.
On the other hand, not enough free trade led to issues such as the over-protection of industries run by inefficient, large companies which no longer held as much relevance, e.g. due to a lack of easy oil revenue to sustain that method of organization. Some industries have shown progress with this such as oil itself, whereas others such as logistics have had less progress.
Mining represents an important industry for a variety of provinces. Even so the government could consider diversity in their economies. The nature of the industry, income differences that it generates and regional over-reliance on it all raise concerns. Natural resources overall make up a large proportion of exports, but other sectors could be further developed so the activity would not be relied on, and could be adjusted based on economic conditions.
Palm oil generates economic activity for Indonesia, as does any natural resource. The same applies to refined palm oil. However, it has experienced downturns in global export demand, unlike natural resources in general. This reinforces the idea of economic diversification such that natural resources are not relied on. Also, in spite of strategies used and international pressure experienced, Indonesia has created ecological disasters with palm oil plantations.
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anufacturing in terms of hi-tech began in a forced manner, but eventually came into its own. Ultimately investments and joint deals have helped increase its status. However it is still dominated by an SOE structure, and has continued to have issues with profitability.
SOEs as a business model are still officially promoted the most, but for different reasons in contrast to pre-reformation. They are changing but greater, as well as more varied, focus could go to SMEs. They could serve as even greater hubs of innovation if given the right attention. In spite of various sectors’ achievements, their SOEs’ indebtedness indicates a necessity for alternative strategies.
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Website References
IndexMundi, “Palm Oil Production by Country in 1000 MT,” IndexMundi (2011): accessed 24 May 2012, <http://www.indexmundi.com/agriculture/?commodity=palm-oil&graph=production>.