Indonesia new hub of business and tourism

Indonesia is the largest economy in Southeast Asia with gross domestic product (GDP) size of nearly $707 billion in 2010 and is expected to be around $760 billion in 2011.

Indonesia’s economy can surpass the global financial crisis and grew by 4.5 percent in 2009 while neighboring countries’ economies were contracted. In 2010, Indonesia’s economy grew by 6.1 percent and is expected to reach 6.4 percent this year.

The fact that Indonesia can surpass the global economic and financial crisis shows that the foundation of Indonesia economy is quite strong to prevent external shock due to sound fiscal condition and less dependent to external factors.

Indonesia’s debt to GDP ratio has steadily declined from 83 percent in 2001 to 26 percent by the end of 2010; the lowest among ASEAN countries, aside from Singapore which has no government debt. In addition, a huge domestic consumption of 240 million populations was an economic growth engine during the crisis when export of Indonesia products decreased significantly.

The future of Indonesia economy is promising. Standard Chartered in its report entitled “The Super-Cycled Report” released on November 2010 projected that Indonesia’s economy could be the 10th largest in 2020 with GDP size of US$ 3.2 trillion.

The report also projects that Indonesia could be the 5th largest economy in 2030 with GDP size of $9.3 trillion, surpasses Japan with GDP size of $8.4 trillion. In the context of global economic affairs, Indonesia is playing a more dominant role in setting up the agenda.

It is the only Southeast Asia countries to be the member of the G-20 and an active voice for developing world’s concerns.

Economic ties with Korea

The bilateral economic relations of Indonesia and Korea gained a greater momentum with the signing of the Joint Declaration on Strategic Partnership to Promote Friendship and Cooperation in December 2006.

This partnership enables both countries to have a closer ties and more realistic cooperation. In economic cooperation field, the implementation of the said Declaration was accommodated by the establishment of the Indonesia-Korea Joint Task Force on Economic Cooperation which has held a meeting annually since 2007.

The significant increase both in trade volume of the two countries and Korean investment in Indonesia can be examples of how the bilateral economic cooperation between the two countries significantly strengthened from time to time.

On bilateral trade, Indonesia and Korea are important trading partners to each other. Total trade between Indonesia and Korea in 2010 amounted to $22.88 billion which grew significantly to 49.92 percent compared to 2009 when the trade reached $15.26 billion.

According to data of Indonesia Investment Coordinating Board (BKPM), the Republic of Korea is the 6th largest investor in Indonesia with cumulative investment from 2000-2010 of $3.35 billion, covering around 1,400 projects.

In 2010, POSCO and Hankook Tire have announced its decision to invest in Indonesia. POSCO with PT. Krakatau Steel, an Indonesian State-owned Enterprise, have created a joint venture company (JVC) in integrated still mill with an estimated investment of $6 billion.

Hankook Tire plans to invest $1.2 billion in Indonesia to build a tire production facility with capacity of 16 million tires per year. In short, the year of 2010 was the year of Korean Investment in Indonesia since BKPM has recorded the approved investment coming from South Korea was over $7.4 billion, a significant increase from the previous year of $0.6 billion.

It is believed that major investment that occurred in 2010 will encourage other Korean companies to invest in Indonesia in the coming years. Major Korean companies have expressed their intention to Invest in Indonesia in the near future.

Investment climate in Indonesia

The international rating agencies have a positive outlook on Indonesian Economy. Prominent rating agencies such as Standard & Poors, Moody’s and Fitch have raised their credit rating to Indonesia. On April 2011, Standard and Poor raised Indonesia credit rating from BB in 2010 to BB+, while Moody’s raised Indonesia credit rating on February 2011, from Ba2 to Ba1.

The upgraded level of Indonesia’s credit rating by prominent rating agencies shows their optimism as well as confidence in the credibility and capability of Indonesia’s economy.

In 2010, the investment realization in Indonesia both foreign and domestic investment was about $23 billion, a 54.2 percent increase compared to 2009 figure. The figure shows the result of government’s efforts to improving the investment climate through better investment services and policy reforms. As Indonesia is keen to attract foreign direct investment, Indonesia Investment Coordinating Board is implementing a one-stop-shop program to cut bureaucratic red tape and allow investors to process business licenses faster.

As infrastructure and energy are key factors for attracting investment, Indonesia is working hard on it. In the next five years, Indonesia is targeting to build 20,000 kilometers of roads and 15,000 megawatt additional power plant, as well as key ports and other infrastructure, with an estimated total cost of $160 billion.

The availability of educated labor with reasonable labor cost is one of Indonesia’s merits as investment destination. Over 50 percent of 240 million Indonesia’s population is under 29 years old, and 60 percent of the population is under the age of 39.

This kind of demographic structure will ensure the availability of labor force for long term period. In addition to its favorable demographic structure, the government of Indonesia is committed improve productivity and the education level of the youth by allocating 20 percent of total government expenditure on education.