Indonesia

Spread across an archipelago of thousands of islands between Asia and Australia, Indonesia is an ethnically diverse nation of some 242 million people and has the world’s largest Muslim population. Its strategic location between two oceans and at the epicentre of traditional East-West maritime routes ensures its continuing place as a key economic growth centre.

The Republic of Indonesia gained independence on 17 August 1945 following the end of Japan’s wartime occupation, and the Constitution was adopted as the fundamental law of the nation.

Long-term leader General Suharto came to power in the aftermath of an abortive coup in 1965, imposing an authoritarian rule while allowing technocrats to run the economy with considerable success. Since President Suharto’s fall from power in 1998, Indonesia has been through a considerable period of flux, including contending with the economic fall-out of the Asian Financial Crisis and the first free elections since the 1960s.

Under the provisions of the Constitution, the President is the leader of the country and is assisted by the Vice-President and Cabinet Ministers. The President is accountable to the People’s Consultative Assembly (MPR–Majelis Permusyawaratan Rakyat) where the sovereignty of the people rests, while the legislative power is vested in the House of Representatives (DPR). Post-Suharto Indonesia has made the transition to democracy, with power devolving away from the central government.

The election of former army general, President Susilo Bambang Yudhoyono, in the country’s first-ever direct presidential elections in September 2004, was hailed as the country’s first ever peaceful transition of power.

Under President Yudhoyono, sometimes known as ‘SBY’, the Indonesian Government's determination to improve economic growth has led to a surge in foreign investor confidence in Indonesia, which, combined with strong capital goods imports, has led to a sustained economic recovery. Foreign direct investment (FDI) in Indonesia nearly doubled in 2005 from US$4.6 billion in 2004 to US$8.91 billion, and planned investment approvals went up by 30% from US$10.42 billion in 2004 to US$13.58 billion in 2005.

GDP growth has increased steadily over recent years, from 3.8% in 2001 to 5.6% in 2005, and is forecast to remain at around the 5-6% level in 2006, owing to strong inflows of foreign direct investment and robust export receipts. By 2007 economists are predicting real growth of 6.4%, as easing inflationary pressures enable some relaxation of monetary conditions.

Indonesia has a market-based economy in which the Government plays a significant role, controlling approximately 164 state-owned enterprises and administering prices on several basic goods, including fuel, rice, and electricity.

Indonesia is one of the richest countries in the world in terms of natural and mineral resources, with the United States and Australia amongst the largest investors in this sector. Oil and gas remain the most important components of the Indonesian economy, with revenues comprising about 23% of the nation’s total domestic revenue. Growing global demand in this area has been instrumental in opening up new investment opportunities.

Indonesia is the only Asian member of the Organisation of Petroleum Exporting Countries (OPEC) and ranks fifteenth amongst world oil producers, with about 2.4% of world production, generating approximately 1.06 million barrels per day. Indonesia's proven oil reserves currently stand at around 4.7 billion barrels.

Indonesia also has proven gas reserves gas of 90.3Tcf (trillion cubic feet), which underpins its multi-billion dollar Liquefied Natural Gas (LNG) export industry Most reserves lie on the Arun field in Aceh and the Badak field in East Kalimantan, but there are a number of other sizeable gas field scattered across the country and offshore.

Indonesia is well placed to provide LNG to established consumers in Japan and South Korea, as well as markets likely to grow rapidly over the next decade, such as China and India. At present, Japan imports about two-thirds of Indonesian LNG production, with the rest sold to Taiwan and South Korea. In other sectors, Indonesia's major trading partners are Japan, the United States and neighbouring nations Singapore, Malaysia and Australia.

Indonesian foreign policy is largely shaped by the nation’s participation in the Association of South East Asian Nations (ASEAN), of which it was a founding member. Indonesia is also a strong supporter of the forum for Asia Pacific Economic Cooperation (APEC).

In 1998, Indonesia and Australia announced the Australia-Indonesia Development Area (AIDA), an initiative aimed at developing closer economic relations between Australia and the eastern provinces of Indonesia. AIDA is Indonesia's first sub-regional economic cooperation area involving a non-ASEAN state. By involving the private sector as the key player in the AIDA process and governments as facilitators of their efforts, AIDA aims to improve the environment for private sector trade and investment in the region.

AIDA's institutional mechanism is designed to provide the widest possible opportunity for interaction between government and business. The private sector will direct AIDA process through six sectoral working groups in the areas of agriculture, fisheries and animal husbandry, mining and energy, tourism, transport, education and training, trade and industry. The working groups will enable business to make and reinforce business contacts, and to make known their requirements to governments.