Indonesia Economy

Indonesia’s newly published economic master plan sets out ambitious targets to become one of the world’s biggest economies over the next 15 years. The plan unveiled by President Susilo Bambang Yudhoyono (SBY) also put the spotlight on the need for heavy investments in infrastructure coupled with improvement in the investment climate.

The need to relax rigid labour restrictions that enforce high severance pay and make it hard to fire staff is becoming a priority for Indonesia. With outdated employment laws affecting investor confidence and benefitting neither employers nor staff, the country is accelerating moves to update employment regulations.

As Indonesia moves into 2011 with excellent prospects for long-term growth, its place alongside giants China and India as one of the most important economies in the world is being increasingly widely acknowledged.

As the year comes to a close, Indonesia can look back on 2010 with no small degree of satisfaction. The economy is performing well, foreign investment is on the rise and there is continued political stability. However, concerns linger over rising inflation and the sustainability of the current growth cycle.

Indonesia’s economy is continuing to power ahead, with strong domestic growth and rising demand for export products. However, concerns remain over a potential inflation breakout due to overheated consumer spending fuelled by low interest rates.

The Bank of Indonesia, the country's central bank, called leading bankers to a meeting last week to discuss new regulations aimed at increasing bank lending. While Indonesia's banking sector has remained relatively robust over the last 18 months, there are concerns that banks are not doing enough to offer credit to certain sectors of the economy, a situation that is stifling potential growth.