FINAL DE REPORT Indonesia

INDONESIA

Final Report Submitted on: 11/30/2014

To: Dr. Mehwish Ghulam Ali

By: Ahmed Abdul Wahid 04375 Amjad Ali Memon 04266 Ghufran Sheraz 05149 Maida Ajmal 05145 Nawab Ghazanfar 04283 Sameel Noman 04367

Table of Contents: Acknowledgement and statement of contribution ...................................................................................... 3 Executive Summary:...................................................................................................................................... 5 Overview ....................................................................................................................................................... 6 An overview of MDG goals............................................................................................................................ 8 LINEAR STAGES OF GROWTH APPLIED.................................................................................................. 8 Income and happiness ........................................................................................................................ 11 Human development index................................................................................................................. 12 Is Indonesia developing or developed country? ......................................................................................... 13 Level of living and productivity: .............................................................................................................. 14 Some structural changes:........................................................................................................................ 15 Level of human capital: ........................................................................................................................... 15 Inequality and poverty: ........................................................................................................................... 16 Colonial Impacts:..................................................................................................................................... 17 Poverty in Indonesia: .................................................................................................................................. 21 Asian Financial Crisis………………………………………………………………………………………………………………………………26 POPULATION:- ............................................................................................................................................. 26 Urbanization in Indonesia ........................................................................................................................... 30 Implications ............................................................................................................................................. 30 Population Demographics of Indonesia ...................................................................................................... 32 Ethnic groups .......................................................................................................................................... 33 Religions .................................................................................................................................................. 33 Languages ............................................................................................................................................... 33 Literacy .................................................................................................................................................... 33 Life expectancy at birth, total (years) ..................................................................................................... 34 Health:......................................................................................................................................................... 35 Education: ................................................................................................................................................... 40 TRADE.......................................................................................................................................................... 45 Conclusion and Recommendations: ........................................................................................................... 52 Conclusion: .................................................................................................................................................. 54

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References: ................................................................................................................................................. 55

Acknowledgement: This research project would not have been possible without the support of many people. We wish to express our gratitude to our instructor and partner in learning, Ma’am Mehwish Ghulam Ali who was abundantly helpful and offered invaluable assistance, support and encouragement. The blessing, help and guidance given by her time to time shall carry us a long way in the journey of life on which we are about to embark. We would like to thank our teaching assistant of this course, Mr. Anil Saleem for the valuable guidance and advice. He inspired us greatly to work in this report. We also would like to thank him for showing us some example that related to the format of our project.

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Statement of contribution: Maida Ajmal: Poverty, MDGs, is Indonesia developing or developed, compilation of report, Asian Financial Crisis, migration, child labor Ghufran Sheraz: Population, MDGs, Harold Domar, stages of growth models Amjad Ali Memon: Trade, Prebisch–Singer hypothesis, Introduction to economy, basic indicators, compilation and made final presentation, effects of oil shocks Sameel Noman: Health, HDI, MDG and goals Ahmed Abdul Wahid: Education, Income and happiness analysis Nawab Ghazanfar: Population and Urbanization

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Executive Summary: This report analyses the history and current situation of Indonesia, a country on its developing stage in Asia. This is one of the most populous countries in the world and the issue of poverty is quite prevalent in this area. Due to its diverse culture and nature its poverty figures differ across different parts. Despite this a small amount of growth has been seen in the recent years which are a positive indicator, as poverty has also reduced overtime. But despite all this disparity between the rich and the poor has increased which no doubt is an alarming indicator. In addition to this, this country has been analyzed at different levels like on the basis of education, healthcare, trade and urbanization. Child labor is a growing issues as 30% of the Indonesia’s population is very young and below the age of 15 years. Kids are forced into jobs with very working conditions and also for the search of jobs people migrate from rural areas to urban centers and a whole informal urban sector has been created. Also there two types of education in Indonesia, Formal and Informal and the the proposed deterioration of the curriculum’s integrity on such a massive scale is concerning as it may transform into a tool of oppression by the Indonesian government. Since its commitment to the Millennium Development Goals, Indonesia has made great effort to achieve the necessary targets especially in the areas of education and health care. As a middle income developing nation, Indonesia has been one of the few from this category who have achieved good results as a result of their policies. Integration of Indonesia’s economy since 1980s has been quite fruitful, globalization has further made the economy to consume beyond its actual production. Openness has made its domestic market more competitive. However economy still provides infant industry argument where tariffs are still high and it doesn’t associate itself with trade agreements within regions compared to its neighbors. Overall future of Indonesia looks bright if government tries to improve the disparity and focus on health, education and improvement of living standards.

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Indonesia A country spread across Islands between Asia and Australia, Indonesia is the 16 th largest Economy in the world and home to the largest Muslim Population as well. Sukarno was able to proclaim its Independence in 1949 after an arm struggle with the Dutch. Since then the country has been in a continuous struggle to improve life of its inhabitants and the economy has expanded strongly over the years.

Overview Structure of the economy has changed considerably, where in 1950’s it was weighted more towards agriculture, representing the stage of development. However 1950’s and 1960 Government is promoted agricultural self-sufficiency and soon moved towards introducing policies in Industrialization and Urbanization. 1980’s when Indonesia saw a fall in oil prices, moved away from oil export and diversified into manufactured products. Since then the economy has been in continuous chase of increase its output production in order to cater to its increasing population which stands at 242 million by end of 2011. Indonesian Economy has been integrated with Global Trade since beginnig with its vast reserves of Oil that became its major source of revenue till 1980’s, it even enjoyed oil shocks of 1970’s, but it was in falling oil prices of 1980’s when it decided to diversift into Manufactured products. Since 1990’s dynamics of trade changed with fuel (Oil, Coal, gas ) still being on Export list, many other things along with Manufactured goods were added that includes travel services, tourism. As a neighbour, Australia has been an important trading partner for Indonesia where it

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exports petroleum and a lot of tourist from Australia prefer a vacation in Indonesia adding revenue to its economy. Overall the Economy is performing well with its GDP growth rate that has moderated to 5.8% in 2013 from 6.3% average of last 3 years. Monetary policy has been designed to control consumer expenditure by raising interest rates at the same time to manage widening current account deficit, rising inflation and devaluation of Rupiah. The government is likely to follow stabilization policy that it prefers benficial for the economy at this stage. An estimate of Economic Indicators as by Asian Development Bank is given below:

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An overview of MDG goals

LINEAR STAGES OF GROWTH APPLIED Before being the 15th largest economy (PPP adjusted) and a status of “newly industrialized country, Indonesia was an agrarian economy which was nowhere near the status that it enjoys today. It started urbanization in the 1960’s and in 1980’s it grew rapidly with declining oil prices and trending toward exporting manufacturing product. After the mid 1980’s, the reduction in trade barriers led to more opportunities to build strong relation with close neighbors such as Australia. However, the Asian Financial Crisis of 1997 severely affected Indonesia, leading to drastic depreciation of Rupiah and high government expenditure. Policies from World Bank- Structural Adjustment Programs (SAP), National Car Program and Clove monopoly (Damaging economic policies of Indonesia) were ineffective in the hope to ameliorate the deteriorating conditions of

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Indonesia. The Asian Financial Crisis and the political instability were debilitating the economy with the depreciating Rupiah, and double digit inflation that further hampered its growth. It was only after 2004 that the potential was seen as the country was enjoying growth of 5.1%, thanks to the increase in domestic consumption. Following are the figures for Indonesia:

SOURCE: http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf The Jakarta Stock exchange saw an auspicious year in 2004 which increased by 24%. However, Indonesia was still facing factors that beset the economy from growing. Factors like low levels of foreign investment, red tapism/excessive bureaucracy and corruption which caused 51.43 trillion Rupiah/ $ 5.6573 billion OR estimated 1.4% of GDP to be wasted on an annual basis. It wasn’t really pushing the country upwards as investments were still low in the economy. With the encouragement from the government to increase tourism and increase exports to countries

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like USA, Australia Japan, China, India, Singapore and South Korea, the newly industrialized country reached growth rate of 6.3% in 2007(10 year high). After India and China, Indonesia is considered to be the fast growing economy in the G-20 economies. In light of the discussion above, we can apply the Harrod-Domar growth model (Investment leads to growth). With the help of tourism, the foreign investments grew and with more domestic saving, the GDP growth became apparent after 2006 with the increase in investments and trade with economic superpowers like Japan, China and USA along with other developing Asian countries. The Industrialization can lead to high employment, people moving from rural to urban areas for better standard of living and advancement in technology (components mentioned in addition to investments-Economic Development, 11th Edition by Michael P. Todaro and Stephen C. Smith). The poverty gap at ‘Urban poverty line %’ trend is shown by graph below:

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SOURCE: http://data.worldbank.org/indicator/SI.POV.URGP/countries/1W-ID?display=graph Income and happiness

The graphs covers the basic corelation between income and happiness across different countries in the world. The general trend as we can see is that the higher the income the more the happiness but we can also conclude that although income alone can lead to happiness but there are several other factors aswell that lead to happiness amoung the low income group of countries. Therefore as we can see there is no country that has very high income and very less happiness howecer there are several countires that have very low income but happiness comparative to that of the higher income countries. Indonesia as we can see is one of these

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countries where the income is less than $5000 per capita but in the happiness there are around 90 percent people happy, which is a great number. To put things into perspective the hapiness is equal to that of belgium where the income of belgium is around $30000 per capita. This goes on to show that other factors such as low unemployment, low inflation, low crime rate, better sense of security, these factors are positive in indonesia leading to a high amount of happiness. Human development index Taking the income and happiness relation one step further I will now discuss the human development index, which is a composite of life expectancy, education, and income indices which are used to rank. There are 187 countries invovled in the index and HDI index is final number according to weights and the score of each individual category mentioned above. As of 2012 the score indonesia got was .629 and it was ranked 121st ou tof the 187 countries. Talking about the growth in HDI indonesia has been constantly grwoing since 1980 where the HDI was .422 only. comparing the HDI with other countries indonesia shares the rank with southafrica and kiribati. And countries that are leading the HDI index include Norway(.944), Australia(.933) and switzerland(.917). Now what this implies is that people might be happy in their own capacity in indonesia, but one lacgging factor as mentioned earlier is the low income and other factors such as literacy, life expectancy, inequality and pverty all combined add up to the HDI. And keeping in mind that indonesia is a developing country is no surprise that the more developed countries with high incomes lead the tables and the lesser developed countries fall below.

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Is Indonesia developing or developed country? Indonesia is a country which lies somewhat in between the status of developing and developed countries. It has been classifies as NIC which is the short form for newly industrialized countries. These countries are more advanced than most of the developing countries but don’t show signs of full development so this is a slightly new category assigned to them. Some of the other countries in similar status are South Africa, Mexico, China, Malaysia, Brazil, India, the Philippines, Thailand, and Turkey. Starting from 2011 Indonesia started to receive huge amounts of capital just after India and china but some factors still prevailed then and are also present now which hindered the full utilization of the resources. Some of these unique problems faced by it are: 1. Poverty 2. massive corruption 3. persecution of minorities 4. human rights abuses 5. unemployment Indonesia is a country which is blessed with large number of natural resources just like Pakistan but it has not fully utilized them and much of the profits generated by this country are taken away by multinational countries. Northern America and Western Europe (service based economies) are the economies which are developed in the true sense having GDP per capita of 20,000 $ and when we compare Indonesia we see that it’s not as developed as them. We will look at some of the characteristics in detail to elaborate the developing status of Indonesia: Indonesia: Term report

Level of living and productivity: One of the indicators used is GDP per capita which s a rough indicator of standard of living. There was a global depression in 1930s so the GDP fell a little and then it was followed by an increase in 1940s. If we look at the western standards and if we look at different countries across Asia it is revealed that Indonesia the standard of living has improved over the years and there has been exceptionally high growth in the 20 th century.

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Some structural changes:

The most important changes in the history of Indonesia are the structural changes. If we look at this diagram we see that before 1970s agriculture was most prevalent and most important and was the single most prevalent sector of the economy. Starting from 1930s this country adopted many policies to shift towards domestic production as has Pakistan done in its initial years. The policy adopted was known as ISI which is the import substitution industrialization. Main essence of this theme is to produce as much domestic goods as possible and then shift to the external market if needed. We can say that still agriculture was mainly focused on despite the efforts of government to promote industry and it was only after 1960s that actually a progress was seen in the industrial sector. Level of human capital: Having the best and the most skilled human capital is necessary for any country if I wants to progress. We look at the attainment of education of their people. This increased from as low as

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one year in 1950s to its double twenty years later that is in 1970s. There was more importance started to given to primary level education and it became compulsory as well and much was done to increase the staff members. The enrollment in these schools also started to show a positive trend. The second measure of human capital is skills which are present in the people and are given to them by training. Indonesians lack in certain skills such as: 1. Basic aptitude, 2. Mathematics skills, 3. English proficiency. We can say that over the years the government of Indonesia has done a lot to improve the education at primary level and has been quite successful but the results at secondary and tertiary level have not been much good. Also their people lack certain skills which need to be inculcated in them.

Inequality and poverty:

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We look at two indicators Gini index and percentage expenditure share and conclude that they have changed only slightly. Until 1970s there has been a worsening effect in the inequality while it has improved slightly in 1980s and onwards. But if we see overall we can say that poverty has decreased over the years from 1970s and also economic growth is the main factor responsible for reduction in poverty over the past two decade. Colonial Impacts: Indonesia was colonized by the Dutch people and at the time it was done it was highly opposed by the people in those areas. But it was seen over the years that the colonies which were made by them in the so called East Indies were not that bad but was actually profitable. The resources extracted from the islands under their controls provided surplus for the years to come. In these areas railroads and military installations of the Netherlands were built and this was due to by the forced labor of Indonesians. But this cultivation system eventually failed due to several reasons. Millennium Developmental Goals: (MDGs) Millennium Developmental goals are a set of eight goals which have been adopted by the United Nations in the 2000 and these goals have been assigned specific targets each of which refers to a problem whose solution needs to be achieved by 2015. Following are the eight goals: 1. 2. 3. 4. 5. 6. 7. 8.

To eradicate extreme poverty and hunger To achieve universal primary education Promote gender equality and empower women Reduce child mortality Improve maternal health Combat HIV/AIDS, malaria, and other diseases Ensure environmental sustainability Develop a global partnership for development

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What is the status of Pakistan in achieving the MDGs by 2015? Pakistan was amongst those 189 nations who agreed that these eight goals are very important and need to be focused on so that the lives of people can be improved living in these countries. This agreement was signed back in 2000 and now its 2014 so it is clear that less than a year is left till the ending of the date for these goals to be achieved. But the irony for Pakistan is that it is very far from achieving them and the growth in economy has not been much encouraging either. This situation can be seen not only in Pakistan but also in all similar developing countries like India and Bangladesh. Recently a report was prepared by the Commonwealth foundation with the help of UN and it basically focused on how much countries have been successful in achieving these goals, a similar report was prepared for Pakistan and the facts were surprising because it had not kept its commitments and lagged behind in a lot of situations. If we look at the first goal which is to remove poverty we see that Pakistan is way behind in achieving this objective. Throughout the county we see that people are deprived from basic necessities including food clothing and shelter and a large number of people die each year because of shortage of food. The beggars on the big streets of Pakistan are a very common sight.

This table has been taken from the planning commission government of Pakistan’s report of 2013 and it throws light upon three indicators and whether they are on track or not. As we can see that out of 3 of them 2 are not on track and are actually showing signs that they won’t be achieved as per the target of 2015. Only the proportion of population below the calorie based food plus non food poverty line has a latest national value of 12.4 which is well below the target of 13 and this is the only good sign we can see. Another shocking statistic is the increase in the employment to population ratio which according to report “Pakistan’s employment to

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population ratio increased from 27.1 percent in 2001/02 to 30.9 percent in 2010/11, making the prospect of full employment by 2015 highly unlikely”. In Pakistan the relation between growth and poverty is not clear. In the Ayub khan’s era when Pakistan made a huge development and when it was referred to as a decade of development there was still something which made it the controversial sixties. The reason was that the wealth had accumulated in the hands of 21 businessmen and poverty had increased for rest of the people. In today’s time the food prices are on a rise and majority of the people are not able to afford these increasing prices. Moving on to the next goal, it is to achieve universal primary education.

These are the three indicators 1. Net primary enrollment ratio 2. Completion/ survival Grade 1 to 5 3. Literacy rate Pakistan is off track on all of these indicators. We see that majority of the kids here do not a get a chance to go to school because they are not able to afford the high fees and also because they feel that their kids might work and earn for them and sending them to school would be a waste of time. Right now the literacy rate according to the report is 58 percent but this too does not show the true facts because it is tilted more towards the male population and lesser towards the female population. 70% Males 47% Females Although if we see overall the literacy rate has increased since 2000 but not enough o match the 88 % goal as mentioned in the MDGs. The inequality issues in regard to schooling of girls and boys still needs to be solved. Indonesia: Term report

The third goal as stated by MDG is related to women empowerment and gender equality. Previously women did not have much representation in majority of the sectors including the legislative bodies of the government. But gradually after the passing of several bills this situation has improved and from just few seats the number has increased to 60 seats for women in National Assembly which is a major change. A lot of opportunities for women have been created and awareness is on the rise about the importance of education for the women and girls. Let’s look at the table to better understand how the issue of gender inequality is being dealt in education sector.

Looking at this table it is clear that education sector needs to be pushed as to improve the number of girls getting education because as discussed earlier the illiteracy rate has improved but not as such for the women due to their unequal treatment. There are 5 indicators of which only one is on the track while the rest 4 are off track and needs to be focused on. No doubt these days’ women have more chances to go out and study but still it lacks behind when compared to those opportunities created for men. So we look at issues faced by them in 3 major areas which are: 1. Education 2. Employment 3. Political participation This goal is very important to achieve because in Pakistan if a woman is educated then she can teach her kids that information and also it helps on reduced mortality rates but at the moment despite a lot of efforts the situation for women has improved in only one sector that s their representation in the national assembly. So we have now come to our fourth goal which is reducing the mortality rate. If we look at the overall mortality rate in Pakistan for the children under 5 years we see that it has actually decreased and this is a positive improvement toward the achievement of the goal but there have also been many deteriorating features attached

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with it. These are the low level of hygiene and lack of government in providing clean drinking water for the people.

Looking at this, we see that on a bright side that one of the indicators under this goal has already been achieved but the remaining four are yet off track. But despite all this there has been a lot of improvement on this goal. Cures of lot diseases have been found and children are already given medicines and drops to protect them from any fatal illness. But still the government has a long way to go in implementing policies in this regard. So if we look at the first four goals then we see that Pakistan needs a lot of time still to achieve these goals fully but not enough time is left till 2015 so from the face of it , this looks very difficult for Pakistan to achieve MDGs in such a short span of time. Efforts are being made and one can just stay hopeful that a miracle might happen and Pakistan might get on track towards achievement of these goals.

Poverty in Indonesia: Poverty throughout the world is a very important and major issue and when we talk about the developing country Indonesia we see that there poverty has been a widespread issue for a very long time but there has been a slight improvement in the recent years because now the figures show better conditions. In this country the poverty is classified into two parts specifically which are:  Rural Poverty  Urban Poverty

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But due to the diverse nature of this country the characteristics of poverty vary across different culture and parts. Years

Poverty Figures (% of population)

1999

23.43

2005

15.97

2007

16.58

If we look at these figures we see that from 1999 till 2005 there has been a significant reduction in the poverty across Indonesia as the figures suggest and from 2005 till 2007 there has been a slight increase but overall the figures look convincing for the years to come. This all has been because of the fact that it has seen small amount of growth in the recent years and this means that there has been an improvement in the living standards of all the people be it in the sector of education, health care or general well being of the citizens. PPP figures help a lot in this regard and when we look at these figures it seems very promising because they have doubled over the years for a decade till 2012. Now there is another major issue which is the growing disparity between the rich and the poor. The general perception is that all of the people are getting better in terms of their consumption and living standards but when we look upon the figures it shows a contrast for instance the World Bank reports show that the real consumption for the years 2003-2010 showed a growth of about 4%. Now let’s look at individual figures for both rich and poor. For rich the consumption grew by about 5.9 % while on the other hand for the poor the consumption grew by mere amount of 1.3%. So we can conclude that rich are getting richer at a faster rate than the poor are and we can say that there is an increasing disparity which sure is alarming. GINI Coefficient and Lorenz curve: Now Gini coefficient which coefficient tells us about the inequality prevailing Is a very important measure and its value ranges between 0-1. Here 0 stands for perfect equality while on the other hand 1 stand for perfect inequality. So the Indonesia’s figures which support this inequality and disparity are its increase in the Gini coefficient which is still rather in line with the figures with other developing countries. It was 0.38 in 2011 while only 0.29 in 2000. Although these figures are not very different but even this slight change can be very dangerous

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if this trend continues and so the government needs to focus on the control of the disparity which is being created in the different parts if the country. So we can say that Lorenz curve has slightly shifted outward and the figures of different countries including Indonesia for different years can be seen in this table taken from the World Bank:

We can see that as compared to the rest of the countries the figure for Indonesia’s gini coefficient is not that bad. From these figures Iceland has a very low figure while Honduras has large figure which shows inequality. Some migration figures: There have been reports of a lot of rural to urban migration by people and a whole informal sector is present in the urban areas. Around three million people leave their homes and migrate towards cities like Jakarta in search of better jobs, education and standards of living. Mostly jobs that they get are not very high end rather are low level jobs like food sellers on the road sides and this whole sector is very important for the country as it constitutes about 70% of the GDP. Because of all this poverty and other issues Indonesia moved towards a development plan for the year 2005 to 2025 and it focuses on three major things: 1. Improving HR quality Indonesia: Term report

2. Science and technology development 3. Strengthening of economic competitiveness Now if we look at the assumption of the Kuznets curve which says that inequality increases during the early stages and then starts to decrease it kind of looks true for Indonesia as well because as it has started to show growth its inequality as shown by the gini coefficient has increased but we can be optimistic that as the growth continues this inequality would reduce. So if people of this country migrate towards low end industries from agricultural jobs then poverty reduces but it reduces by a greater amount if they get jobs in manufacturing industry. But here we can see that still large amount of the labor is employed in agriculture and low end service industries. The infrastructure is still very poor but its improving access to better health , education, sanitation and clean water .

Child labor: Indonesia is one of the most populous countries in the world and its population is about 220 million but about 30 percent of the country’s population is below the age 15 of which means that a lot of the people there are young and hence the issue of child labor also exists. Although in Indonesia there has been growth in recent years and there has been a lot of effort towards the improvement of education, still many children do not attend school and this figure has been estimated to about 4 million and they enter the job market and are thus exploited at low wages and extreme condition. This again is related to poverty and we can say that poor people are forced to send their children to work in order to get themselves out of this trap but this creates more problems for them in the long run. A National Action Committee was established and its main aim was to eliminate poverty and to save the country from its damages. It’s a three phase program which continues over a period of 30 years.

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Policies recommended: According to World Bank child labor is a sign of poverty and hence if poverty is eliminated, child labor can be eliminated as well. Hence in order to control this poverty the focus should be more on the reduction of inequality between rich and poor. More spending must be directed towards the poor and they should be given chances to work in the manufacturing industries rather than just forcing them to work in lower end service sector which is basically the informal sector in

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the economy. More poor people should be given access to education and learning and training programs at lower fees and incentives should be given for scholarships. Second focus should be to get as many children in the schools as possible or dropout rates must be reduced for this vocational training programs must be focused on, some sort of incentive should be given to the parents that ensure them that their children would get good jobs after getting out of them. Another way to get rid of this major issue can be to ban it which is a very extreme way if doing this but can prove effective. So in short to save Indonesia from entering into a poverty trap there must be policies adopted by government which provide funds to the poor and tries to reduce the disparity between the both because when this gap reduces totally then only a country would be able to progress.

Asian financial Crisis: Asian Financial Crisis started in July 1997 in Thailand. This country was hit by some serious issue of foreign debt and in order to enhance the foreign export revenues it floated the baht currency and this sowed the seeds of the issue. This issue not only hit these country but created serious issues for other countries like Indonesia, South Korea and other East Asian Countries. Initially the foreign investors thought that Thailand would be safe from such a disaster but later it became one the hardest hit countries by this crisis. This was due to the fact that it was not only of financial economic nature but also of political and social nature.

POPULATION:Indonesia currently ranks #4 among the most densely populated countries in the world, after China, India and U.S.A. Following is the exact figure along with the date the source was accessed:

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SOURCE: http://www.census.gov/popclock/ For further information, check: http://worldpopulationreview.com/countries/indonesiapopulation/

But if we observe the policies regarding population growth, they are considered as a benchmark for other countries to follow. In the article from the “Journal of Development and Social Transformation”1

1

(Barnwal)

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https://www.maxwell.syr.edu/uploadedFiles/moynihan/dst/barnwal6.pdf?n=8104 we can see Indonesia successfully bringing down the fertility rate from nearly 6 (1970) to 2.59 (1990). The article compared two developing countries: India and Indonesia on the basis of effective population control program. Yet, Indonesia continues to stay in the top 10 most populous countries in the world. So what seems to be the problem? There can be 2 reasons through which we could understand the continuing population growth increase: 1) Through the concept of Malthusian Population Trap and, 2) The Muslims view on childbirth control Malthusian Population Trap From the definition of Malthusian Population Trap, “the threshold population level anticipated by Thomas Malthus (1766-1834) at which population increase was bound to stop because lifesustaining resources, which increase at an arithmetic rate, would be insufficient to support human population, which increase at a geometric rate,”2 the population level will stop growing if the resources become limited and the families would have to live on subsistence level of income. However, Thomas Malthus’ model ignores the effect of technological advancement which would lead to higher per capita income and more life sustaining resources. Indonesia also happens to be one of the rapidly growing developing countries in the world. One of the reasons for reduced fertility rates in the past was due to proper implementation of ‘family planning program’, which also involved religious leaders.

“Every Indonesian child remembers the slogan: Two children are enough. It also introduced the notion of a small, happy and prosperous family, equating it with a picture of a family with two children.”3 http://www.thejakartapost.com/news/2009/08/05/indonesian-population-growthmust-be-controlled-save-environment.html-0 But since the fall of New Order of Sukarno (The 2nd President of Indonesia), the population controls have been diminishing and the government has not been effective since. Also adding to the problem was the dynamic growth that took place in Indonesia during 2004 with domestic consumption leading to higher economic growth (since it roughly contributes three-fourth of Indonesia’s gross domestic product). In addition, The Jakarta Stock Exchange stood at 42% in

2 3

(Michael P.Todaro) (The Jakarta Post, 2009)

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2004; a positive image for Indonesia. But also taking into account economic growth of 6.3% in 2007 which was growing to a 10-year high. Therefore, brief and abrupt positive changes in Indonesia can be disregarded. So we can see that technological or economic progress leads to larger population. The key drivers that we can determine from the effective birth controlling programs is mass education, improved education of women and awareness in use of modern contraceptives. 4 The Muslims view on childbirth control The other reason why Indonesia is unable to curb the growth rates needs to be assessed on the fact that the majority of its population is Muslim. The concept of abortion and strict controls are frowned upon and, therefore not practiced on a large societal level. The only way policies are seen working is when, both the government’s contribution and the citizens’ appeal to participation becomes effective (over the entire community or large region) in bringing fertility rates down. In the last years of Sukarno, there was widespread political instability and social unrest that led to several deaths and divisions between groups. There is also a misconception involved with larger population. It is widely misunderstood that growing population will lead to more employment as the excess number of workers for jobs will reduce the unemployment levels. But as Malthus suggested, constraints on land and other necessities will lead to congestion, rapid propagation of fatal diseases and overall unsanitary conditions. Without proper basic education across Indonesia, high population growths will continue to adversely affect the economy, rather than a means to reduce unemployment rates. It is not the insufficient number of labors in the job market; it is the lack of necessary skills for a job (competency) that leads to higher unemployment. Therefore, education plays a fundamental role in population control and prevention of various diseases.

4

(William H. Frederick and Robert L. Worden, 1993)

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Urbanization in Indonesia

Urbanization in Indonesia expanded hugely taking after the nation's quick advancement in the 1970s. From that point forward, Indonesia has been confronting high urbanization rate determined by provincial urban movement. In 1950, 15% of Indonesia's populace existed in urban areas. In 1990, after 40 years, this number multiplied to 30%. Indonesia took just an additional 20 years to build the urban populace to 44% as reported in 2010. The Central Statistics Agency (BPS) reported that the average population density of Jakarta, the capital, had escalated to more than 14,400 individuals for every square kilometer. BPS additionally anticipated that the populace in Jakarta will achieve 11 million individuals in 2020 unless measures are taken to control the population growth. Socio-economic effects Contrasted with the high power of in rural-urban relocation, most local governments in every province are obliged take care of the raising demand of administrations and infrastructure as far as lodging, transportation, and employment. At the point when these requests are developing at a quicker rate than the accessibility of infrastructure, there is a 'socio-economic dualism' which is perceptible inside urban society in Indonesia. Socio-economic dualism depicts innovation and 'kampung (town)' society existing together in urban territories. In Central Java, there are 14.1% or 2092500 individuals whose livelihoods are underneath the poverty line. In West Nusa Tenggara, the quantity of poor individuals is accounted for to be 23.7% out of the aggregate urban populace. Firman (2000) contends that this socio-economic dualism delineates the spatial isolation and financial imbalance. As indicated by Theil Index T, inequality in Indonesia urban communities expanded from 0.25 to 0.33 in the time of 1999 to 2002. Without availability of vocations catering the needs of ruralurban migrants, the income differences in the rich and poor in urban zones will worsen. This possibly prompts social friction, political strain and discrimination in areas for example, healthcare and education. Without legitimate administration and actions, the consistent convergence or rural-urban migration may pose a genuine danger to the infrastructure in the urban communities. For instance; transportation, movement emergency costs Jakarta $1.4 billion a year because of activity blockage and public transportation which are direct results of traffic congestion.

Implications One of the ramifications of urbanization and development in Indonesia is the changing demographics in the rural zones. As indicated by the United Nations Department of Economics

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and Social Affairs, populace aged in excess of 60 in Indonesia is expected to increase by 16% by 2050 which shows the quickly ageing population in Indonesia. Also, there are more youngsters moving to urban areas looking for better work opportunities now because of urbanization. This abandons countless ageing populace of Indonesia to live on their own in the rural ranges. The primary source of income for the individuals in the rural zones originates from farming and agriculture. Insights from the Agricultural Ministry demonstrate that out of the 140 million agriculturists in the nation, 80% of them are aged 45 or more. With men moving out of the rural territories in extensive amounts, there will be fewer individuals taking over farming practices from the retiring farmers. It is sometimes associated that this migration of the young people is due to the manual and hard work that is needed of them to work away at farms. Likewise, the youth would prefer not to face the dangers of having a terrible or bad harvest. This prompts a significant concern for the country in regards to the agricultural industry. There is a high probability of a food crisis in the near future if production levels are not expanded. Ageing agriculturists continue to work with their traditional and manual systems for cultivating because of low skill and low educational levels. Production level in the agricultural industry is very low as a result of this. VP Boediono cautioned that the current levels of nourishment creation won't be sufficient to adjust the increasing population even in the short/mid-term future. An alternate issue of rapid urbanization is the fall in investments in the country's rural infrastructure. There are plenteous investments in urbanization ventures. Population of individuals living in urban zones is anticipated to increase by more than 65% by 2030. However, after 1980, capital investments in rural developments started to decline. Transport frameworks and streets are extremely critical types of foundation that assist in the improvement of rural areas. Farmers require better streets and a more effective transport network in order to have the capacity to reach bigger markets outside of their towns and villages. Studies demonstrate that a large portion of the kabupaten streets, which make up to 72% of the street system, are in poor condition. Additionally, the lack of sufficient investments in country's rural areas further stresses the rate of migration of young people from villages to urban communities. The youth doesn't have a stage for advancement in such territories where there are no exertions made to enhance their ways of life. Social and healthcare services in rural parts of Indonesia have also deteriorated with the fall in investments in country's rural infrastructure. The aged don't have legitimate and affordable healthcare services which is extremely vital for them given their age and occupation as farmers. Statistics demonstrate that in East Kalimantan, the quantity of towns which have a clinic or a hospital has diminished from 37 in 2005 to 33 in 2008. Additionally, the quantity of Puskemas (Public Health Center) – the health center which is particularly focused to the lower pay families

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- in West Java, Central Java, and East Java and South and East Kalimantan have diminished from 222 in 2005 to 209 in 2008. Indonesia likewise experiences an absence of health awareness experts, for example, specialists, doctors and nurses. The majority of them stay at urban zones which has created a lack of medical caretakers in the rural areas. The destitute in rural regions don't have a solid and effective healthcare framework to turn to in times of need.

Population Demographics of Indonesia

The number of inhabitants in Indonesia as indicated by the 2010 national census is 237.6 million, with 58% living on the island of Java, the world's most populated island. The recent figure for Indonesia's population is shown in the table below, which is 249,865,631 in the year 2013. Despite a genuinely compelling family planning program that has been set up since the 1967, Indonesia's populace is anticipated to surpass USA and turn into the greatest after China and India by 2043. For the decade finishing in 2010, Indonesia's populace growth was 1.49 percent. Some say family planning ought to be revitalized focused around the 1967 project to prevent Indonesia from turning into the world's third most populated nation, yet this point has confronted an obstacle of religiously-based sentiment that to take after family planning is identical to not being thankful to God. Indonesia incorporates various ethnic, social, cultural and linguistic groups, some of which are identified with one another. Since its independence, Indonesian (a type of Malay and official national dialect) is the dialect of most written correspondence, training, government, education and business. Numerous local ethnic dialects are the first dialect of most Indonesians and are still vital to them.

Figure 1: Taken from worldbank.org showing trends of population growth, the life expectancy of Indonesia and economic performance indicators

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Ethnic groups There are over of 300 ethnic groups in Indonesia. 95% of those are of Native Indonesian heritage. Javanese is the greatest one with 100 million individuals (42%), followed after by Sundanese who add up to about 40 million (15%).

Religions Indonesia is the world's most populated Muslim majority nation, with very nearly 87.18% of Indonesians proclaiming Muslim in the 2010 census. 9.87% of the populace is Christian (of which more than 70% are Protestant), 1.69% are Hindu, 0.72% Buddhist, and 0.56 other. Most Indonesian Hindus are Balinese and most Buddhists in advanced Indonesia are Tionghoa.

Languages Indonesian is the offical dialect yet there are numerous diverse languages native to Indonesia. As indicated by Ethnologue, there are as of now 737 living dialects, the most generally used being Javanese dialects. Various Chinese lingos, most noticeably Min Nan, are additionally spoken. Public utilization of Chinese, particularly Chinese characters, was formally debilitated between around 1966 and 1998.

Literacy Definition: age 15 and over and can read and write Total population: 92.81% male: 95.5% female: 90.4% (2011 est.) Education and training is not free; nonetheless, it is necessary for youngsters through to grade 9. Albeit around 92% of qualified kids are enlisted in elementary school, a much smaller rate goes to full-time. Around 44% of secondary school-age kids go to junior high school, and a few others of this age group go to professional or vocational schools.

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Life expectancy at birth, total (years) Life expectancy at birth indicates the number of years a newborn infant would live if prevailing patterns of mortality at the time of its birth were to stay the same throughout its life. Below is the life expectancy rate of Indonesia in comparison to developing countries of East Asia & Pacific over the years 2005 to 2012. As you can see, the lower middle income class of Indonesia has comparatively lesser life expectancy compared with the rest of the population.

Figure 2: Taken from the World Bank, showing life expectancy trends compared to other developing countries.

Figure 3: Taken from the World Bank showing various statistics of Indonesia's Population

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Retrieved from Australian National University Working papers No 2011/02, (JAN 2011): https://crawford.anu.edu.au/acde/publications/publish/papers/wp2011/wp_econ_2011_02.pd f

Health: Since its commitment to the Millennium Development Goals, Indonesia has made great effort to achieve the necessary targets especially in the areas of education and health care. As a middle income developing nation, Indonesia has been one of the few from this category who have achieved good results as a result of their policies. However, as a developing nation, Indonesia is still plagued by many problems that hinder it’s capabilities to achieve an above average health care system. Figure 1 shows key health indicators in Indonesia. Figure 1.

The demographic and geographical layout of Indonesia also causes problems in implementation of government plans. As a result the government practices a decentralized layout for providing health care facilities. 33 provinces with over 500 municipalities each have their own health budget and facilities. These districts are all Islands which span a distance equal to the width of USA. Indonesia also lies in territory that is home to the world’s most active earthquake and volcano zone. The health care system in Indonesia is private as well as public. Figure 2 shows the ownership of hospitals across Indonesia.

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Figure 2

The above table shows that the private sector owns more health facilities compared to the government. However the government has adopted a policy of improving existing facilities rather than initiating new ones. The shift from primary to simple tertiary care has seen an increase of more than 30% in government run hospitals from 2004-2014. Increase in per capita income has also led to a rise in the demand for better and improved health care and the government is trying to play its part in making decent healthcare available to the public. The 2010 maternal mortality rate per 100,000 births for Indonesia is 240. This is compared with 228.6 in 2008 and 252.9 in 1990. The under 5 mortality rate, per 1,000 births is 41 and the neonatal mortality as a percentage of under 5's mortality is 49 One of the major steps taken by the Indonesian government in this regard has been to initiate the National Health Insurance Program by which the government aims to bring around 247 million people in the health insurance net by 2019. This will make the program the biggest in the world.

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Low incomes, low education, cultural and geographical barriers have all constituted in the slow growth rate of improved health care in Indonesia. As a developing country hit by severe financial constraints, Indonesia has a lot to lose when it directs finances towards health care rather than fulfilling other needs. However improved healthcare leads to better standards of living which in turn will help the country achieve better overall results. For a country of around 240 million, health care insurance seems like a dream but government policies point towards a favorable outcome. There has been an increase in per capita health expenditure over the last decade and health care now constitutes more of a percentage of the total GDP than it used to. The current plan will involve low payments by low income earners. Similarly, the employers and the wealthy will be paying a premium for the same insurance plan. Health care spending as a percentage of GDP for different countries is shown in figure 3. Figure 3.

The biggest hurdle in the way of this plan is the industry. The employers are reluctant to pay insurance benefits for their employees. It must be noted that Indonesia is a developing nation

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and bureaucracy and corruption and major problems that plague development. The plan was conceptualized in 2004 and was to be given a decade. However, it is 2014 and to date the plan has not been entirely successful. Indonesia extended free health insurance to 48 percent of its population on Jan. 1. By the time the system is fully implemented in 2019 it will cover the whole country at an estimated cost of $15 billion a year – about $60 per Indonesian citizen and 15 percent of the central government’s budget. Traditionally, Indonesia has been known to spend a lot less on health care compared to neighboring Malaysia and Thailand, but the National Health Insurance Program c ould put Indonesia in the driving seat of high quality healthcare in the region. Figure 4 shows comparison of healthcare facilities in Indonesia to countries at the same stage of development along with developed nations. Figure 4

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Medicine also comes under healthcare and the Indonesian governemnt spends around $12 per capita per year on medicines. In the private sector, availability is largely left to market forces, and is generally good. Since the 1990s Indonesia has gradually open ed up its pharmaceutical market to international trade. However, recent changes mean foreign manufacturers that have no manufacturing operation in Indonesia currently face regulatory uncertainty. In the public sector most of the supply of medicines is obtained from the drug warehouse operated by their District Health Office. District drug warehouses are supplied by multiple public sector supply chains. Surveys on expenditure on medicine as a percentage of total expenditure on health care has shown that this figure has gone down by a large percentage over the last decade. This is largely due to improvement in healthcare facilities that leads to a low requirement for medicine. Another reason is the government policies on allowing foreign companies to operate in Indonesia which has helped bring down the prices of medicine. The human resources linked to the health care field are very low in Indonesia. Indonesia has 25 health workers per 10,000 people, which meets the World Health Organization's minimum of 23, but they tend to be concentrated in urban centers, leaving parts of the archipelago without an adequate number of health personnel. There is in fact a shortage of qualified personnel. Even if Indonesia is successful in arranging good facilities, the lack of human resources may prove to be a major hindrance. Human resource is something that cannot be bought. The government has to either invest in medical training and education or to enforce favorable policies to attract qualified professionals from around the w orld and specially the neighboring developing Asian nations.

Some recommendations include:

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Improving checks and balances over health departments of different districts. If the government fails to do so then the end consumer may not be able to benefit from government policies and subsidies as a result of corruption in these districts. Promote private facilities as well as NGOs. With such a huge population the government cannot expect to take on health care all on its own. Indonesia is the 4 th most populated country in the world. With so many people it is a mere impossibility for the government to work on its own. The government should however keep a check on these NGOs and private healthcare facilities in order to curtail mismanagement of funds and exploitat ion. The major challenges faced by the NHIP include fears by hospitals that they will not be reimbursed, lack of information about the program to hospital staff, delayed payments by the government and inadequate payments to doctors. All these challenges need to be faced before the program can be completely implemented.

Education: Education in Indonesia comes under the responsibility of the Ministry of Education and Culture and the Ministry of Religious Affairs. The Indonesian education policy makes it mandatory for all citizens to undertake nine years of education. These nine years are broken into: 1) Six years of elementary education 2) Three years of secondary education (Figure 1 shows the break-up of education in Indonesia)

Indonesia: Term report

The ministry of religious affairs takes control of all educational institutes giving Islamic education. The constitution of Indonesia notes that there are two types of education in Indonesia: Formal and In-formal. Formal education is broken into Primary, Secondary and Tertiary levels. Like the majority of countries, schools are either run by the government or the private sector.

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In Indonesia, the academic year begins in July and ends in June, and the official primary school entrance age is 7. Indonesia has a total of 52,230,000 pupils enrolled in primary and secondary education. Of these pupils, about 30,784,000 (59%) are enrolled in primary education. Figure 2 shows the highest level of education reached by youth ages 15-24 in Indonesia. Although youth in this age group may still be in school and working towards their educational goals, it is notable that approximately 1% of youth have no formal education and 7% of youth have attained at most incomplete primary education, meaning that in total 8% of 15-24 year olds have not completed primary education in Indonesia.

Figure 2

Figure 3 shows the progression in the Indonesian education system. In Indonesia, the gross enrollment rate in primary education is 109% for both girls and boys combined. This number falls to 91% in lower secondary, with a student transition rate to secondary school of 96%. The primary net enrollment rate in Indonesia is 92% and the primary completion rate is 105%. Both these indicators provide a sense of the progress a country is making towards universal primary education -- a key UN Millennium Development Goal -- and, for Indonesia, suggest that the country has yet to achieve universal primary education.

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Figure 3

Learning is measured through literacy rates. This is important since literacy is a major skill in order to achieve higher levels of education. Compared to other countries, Indonesia ranks at the 56 percentile in access and at the 73 percentile in learning. Figure 4 compares youth and adult literacy rates. The graph shows that the literacy rate among the youth in Indonesia stands at an exhilarating 99%. This figure is very large compared to the average literacy rate of youth in middle income developing countries around the world.

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The year 2013 saw drastic changes in Indonesia’s education policy with more focus on religious studies rather than science. According to the deputy minister for education, this move comes as an effort to help students build character and moral ethics. These policies have come under great criticism by many non-Muslims living in Indonesia as well as the UN. This was perhaps done to please the largely Muslim population which was against the secular system of education and preferred sending their kids to Islamic institutes rather than allegedly secularly run government schools. Despite not being an Islamic state, Indonesia houses a population of around 240 million out of which 88% are Muslims. With many of these Muslims pressing for religious education – the government cannot ignore it. What the government can do is to focus

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on a curriculum that provides Islamic education along with hard science in order to keep a check and balance on the religious aspect of education. Instead of going to private institutions, people will therefore be inclined towards public education and the government can then dictate the curriculum on the basis of what it feels is best for the future of the country. Long since its inception in 1945, Indonesia has tried to incorporate a more secular style of governance. It is perhaps this factor that has allowed Indonesia to achieve much more development compared to most South Asian countries in its nearby region. Indonesia’s economy has been strong recently, with 6 percent GDP growth reported last fall. By removing science from its education system, it will undoubtedly impact the ability of its citizens to compete in the future. A lack of scientific training and understanding will mean less research and development, resulting in fewer and less significant technological advances. Education plays a crucial role in society and is the underlying tool that enables a nation to effectively compete on a global scale. It also helps to inform citizens of what to expect and demand of their government, especially in open democratic societies. Ultimately, the proposed deterioration of the curriculum’s integrity on such a massive scale is concerning as it may transform into a tool of oppression by the Indonesian government. Indonesia faces a complex problem on how to address the systemic weaknesses within its educational system. However, reform in the way of omitting science from the classrooms appears likely to have lasting and potentially very dangerous and very real negative implications.

TRADE TRADE

Indonesia being the fifth most populated country in the world is a major producer of agricultural products. Agriculture is very intensive at Islands of Java and Bali that account for 7 percent of Indonesia’s total land area. The reason is soils on these islands is fertile, major crops grown as ranked in order include rice, corn, cassava, soybeans and peanuts.

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Figure 2Trade Dynamics Indonesia World trade organization ranks Indonesia as 27th biggest exporting country in the world. Indonesia’s share in Merchandise trade is given below. It indicates the economy contributes 0.97% of total share in exports and 0.99% of total share in imports. Its main trading partners are located nearby that majorly include Japan, China, Singapore, Malaysia that is an evident that the country has still not practiced diversification properly, it still relies on few trading partners. Top 5 Major Export products by Indonesia includes Coal Briquettes (12%), Petroleum Gas (9.3%), Palm Oil (8.3%), Crude Petroleum (5.9%), and Rubber (4.1%) Top 5 Major Import products by Indonesia includes Refined Petroleum 15%, Crude Petroleum (5.5%), Planes, Helicopters, and/or Spacecraft (2.4%), Vehicle Parts (1.8%), and Cars (1.5%)

Figure 3Indonesia Share of Exports/Imports Integration of Indonesian economy into world economy began in mid 1980’s under regime of General Suharto, the process continued till 1990’s where the government reduced International

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trade barriers and opened the economy to foreign investment. The objective was to diversify the economy away from oil exports. This happened due to 1980’s oil glut where the economy was highly relying on oil exports, the pillar of economy was shifted towards into labour intensive manufacturing which it had advantage of low wages. This gave a way to a number of foreign investors importantly Chinese companies that evolved into immense conglomerates later. Examples include Sinar Mas Group, Lie Mo tie, Liem Sio Liyong. The labour intensive manufacturing secrtor thrived successfully and led to decline share of agriculture in total economy. In 1985, the share of agriculture in the GDP stood at 23.2 percent.[63] By 2000, that share had fallen to 16.9 percent. Figure below shows recent changes in percentage of output per sector.

Figure 4 Share ot Output per Sector http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-4.pdf Overall Indonesia’s policy objectives have evolved over the years and now are more complex than they were 25 years ago. They include diversification, this is to be done to provide more employment opportunities available to rural areas, to move up to value added processing chain. This is case to make sure agricultural exports earn higher in primary production. The government has also aimed to protect farmer’s income aswell to make sure that they are motivated towards higher productivity.

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Economic Freedom

Figure 5 Economic Freedom

According to Heritage, Indonesia’s economic Freedom score stands at 58.5 that makes the economy 100th freest in the 2014 world Index. Its point has improved notably from last year by 1.6 points due to improvements in business freedom, investment freedom and financial freedom. However Indonesia is still ranked at 21st out of 42 countries in Asia Pacific region. Freedom from Autocratic rule of General Suharto since 1998 has lead to a widening range of political freedoms, and participation in political process is high. Indonesia is now also a member of G-20. Association of Southeast Asian Nations as well. It was President Susilo’s efforts that tried addressing corruption and boost foreign investment. Looking at trade policies it average tariff stoods at around 2.6 percent along with other import licensing and quotas that further restrict trade. Indonesia’s infant industry argument is still present and the country believes in making its industries more competitive. This is the reason why it’s not very active in forming trade deals with its partners when compared to other countries in the region. Since 1980’s the country has maintained an open trade regime , however its policy towards liberalization has varied a lot .depending on its economic situation. Various measures to restrict imports mostly in agriculture and food products have been introduced.

Financial Sector Indonesia: Term report

Measures to check efficiency of a small economy include Banking Spread and Non Performing Loans. Banking spread is calculated by the difference between lending rate minus the deposit rate. Since Banks are the major players of the financial sector in small open economies, their efficiency has a major impact on the overall economy. The graph below shows Banking spread shrinking over the years and has stablised at around 6 percent.

Figure 6 Banking Spread Comparison, Indonesia and World, Indonesia in red, World in Grey

This indicates ratio of Non performing loans to Gross loans. This shows that they have fallen considerably indicating that the economy is able to overcome efficiency as more people are now able to pay back loan borrowed.

Figure 7 Non performing loans to Gross Loans Indonesia: Term report

http://www.tradingeconomics.com/indonesia/foreign-exchange-reserves

Prebish Singher Hypothesis The hypothesis states that Primary products have fluctuating prices because of International price fluctuations in them. Thus fluctuations in International prices leads to Exchange rate of fluctuating country to fluctuate as well. This is the reason LDC’s who rely on agricultural exports have a managed float, upper and lower bounds. Primary products have inelastic demand that means a fall in price leads to a fall in Quantity demanded as well. Low income elasticity of around 0.5 to 0.6, while manufactured goods have high income elasticity, manufactured goods have high income elasticity. Hypothesis says that Primary products price is falling, as LDC’s become richer they make demand more manufactured goods, so flow of income from LDC’s to develop. Test for Indonesia   

Instable Exchange rate Terms of trade would worsen Foreign Reserves Increasing or Not

Terms of Trade 1.22 1.21 1.2 1.19 1.18 1.17 1.16 1.15 1.14 1.13 1.12 2004

2005

2006

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2007

2008

2009

2010

2011

2012

2013

2014

Figure 8 Terms of Trade plotted on excel

Figure 9 IDR compared to US dollar 1991-2014

Figure 10 Foreign Exchange reserves

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Foreign Exchange Reserves in Indonesia increased to 111972.61 USD Million in October of 2014 from 111164.46 USD Million in September of 2014. Foreign Exchange Reserves in Indonesia averaged 61183.98 USD Million from 2000 until 2014, reaching an all time high of 124637.75 USD Million in August of 2011 and a record low of 27404.30 USD Million in July of 2000. Foreign Exchange Reserves in Indonesia is reported by the Bank Indonesia.

Conclusion and Recommendations: Policy Recommendation Indonesia needs to deal with its inadequate infrastructure and high costs before opening up completely to world Economy. Otherwise, it will not be able to compete internationally and remain an attractive market for trading partners. Also it must be forgotten that the domestic market is big enough to support domestic producers, they must be protected and respective support from government shall be given. China seems to only hungry for Indonesian raw materials and energy, while gaining heavily from imports to Indonesia. Also agreement between Japan and Indonesia been not successful to Indonesian producers as they don’t meet the standard requirements of Japanese Industries and consumers. Indonesia ought to transform its disposition that the nation is not prepared for a more open economy. Enhancing aggressiveness and economic integration are not totally unrelated; actually they fortify one another. For one, a more open economy, particularly from complementary exchange understandings, would stretch the business sector base and opportunities for nearby makers. While Indonesia has an enormous potential business of 240 million individuals, its aggregate purchaser buying force is not as large as that of most created markets. An outward looking exchange administration would encourage Indonesia taking part all the more effectively in the worldwide and territorial creation system. Its inclusion is as of now low. It is evident that Indonesia needs to draw more investment from abroad as its foreign direct Investment (FDI) is very low at less than 3 percent. On the other side Trade agreements would increase Indonesia’s attractiveness as investment decision. Keeping low barriers to entry would reduce it’s cost of production by allowing investors to move capital and intermediate goods. Trade agreements would also increase Indonesia’s attractiveness as an investment destination. Improving competitiveness goes side by side with competition. Higher competition would lead to pressure on producers to work more efficiently as well. Also with an open economy it would mean international competition as well. Indonesia: Term report

According to a recent investigation by the Indonesian corruption watch, corruption in the Indonesian education department and system is rampant. This corruption is a direct hindrance to the education system of Indonesia. This means that despite budgets allocated to education, that money never makes it to the right hands. The future of Indonesia looks very promising but this corruption could prove to be a major hurdle. The government needs to target this at the core even if this means the removal of important ministers. The collective agenda of Indonesians should be put forth the personal agenda of a few affluent people and corrupt officials. Another key recommendation is to improve the education of teachers who will be teaching at government run schools. These teachers are the ones who come in direct contact with children. In view of the recent non-secular reforms of the Ministry of Education, emphasis should perhaps be placed on these teachers to improve the sense of morality of the children and improve character building. Emphasis should also be placed on privately run schools. Many private schools fall in the category of Religious institutes which may end up preaching in different styles and this may in turn upset different groups in the large population of Indonesia. The state needs to regulate the teachings of these Islamic institutes to make sure that religious education is uniform and so that it goes hand in hand with non-religious education. The Indonesian government also needs to enforce a plan to spend more on medical education and training. The government may also raise the salaries of medical personnel in order to attract qualified personnel from nearby countries in order to tackle its deficiency in human resources. The NHIP is one of the major programs of the government. If the government succeeds then by 2019 Indonesia will be home to around 247 million people with health insurance. However, the Nation Health Insurance program goes hand in hand with improved

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medicine, more qualified personnel and reduction in barriers from bureaucracy and corruption.

Conclusion: In short the future of Indonesia seems very bright and promising but for that all the policies recommended must be followed and most importantly the disparity between rich and the poor must be focused on. Better terms of trade and improved health care and educational facilities are also needed if it aims to have a bright future.

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References: (n.d.). Retrieved from Indonesia Investments: http://www.indonesiainvestments.com/finance/macroeconomic-indicators/poverty/item301 (2014, May 3). Retrieved from The economist: http://www.economist.com/news/finance-andeconomics/21601550-poor-are-benefiting-relatively-little-indonesias-growth-muted-music child labor in Indonesia . (n.d.). Retrieved from International Labor Organization: http://www.ilo.org/jakarta/areasofwork/child-labour/lang--en/index.htm Indonesia Overview. (2014, October 1). Retrieved from The world bank: http://www.worldbank.org/en/country/indonesia/overview UCW. (2012). understanding children's work. Retrieved from http://www.ucwproject.org/Pages/bib_details.aspx?id=12298&Pag=0&Country=101 united states department of labor. (2013). Retrieved from unites states department of labor: http://www.dol.gov/ilab/reports/child-labor/indonesia.htm (n.d.). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/New_Order_%28Indonesia%29 (n.d.). Retrieved from http://en.wikipedia.org/wiki/Economy_of_Indonesia#Post_Suharto (2009, August Wednesday). Retrieved November Sunday, 2014, from The Jakarta Post: http://www.thejakartapost.com/news/2009/08/05/indonesian-population-growth-must-be-controlledsave-environment.html-0 Barnwal, A. (n.d.). Success of the Indonesian Population Program: Lessons for India. Journal of Development and Social Transformation , 43-49. Michael P.Todaro, S. C. Economic Development, 11th Edition. William H. Frederick and Robert L. Worden, e. (1993). Indonesia: A Country Study. Retrieved from http://countrystudies.us/indonesia/ Additional reading website References: www.transparency.org/content/download/4459/26786/file/Introduction_to_political_corruption.pdf http://www.bloomberg.com/news/2014-01-27/indonesia-facing-populace-larger-than-u-s-revives-birthcontrol.html Retrieved from Australian National University Working papers No 2011/02, (JAN 2011): https://crawford.anu.edu.au/acde/publications/publish/papers/wp2011/wp_econ_2011_02.pdf

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Retrieved from The Jakarta Post (OCT 2011): http://www.thejakartapost.com/news/2011/10/27/booming-population-spawns-urbanizationproblems-un.html Retrieved from The World Bank (2014): http://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS/countries/ID-4E-XN?display=graph Retrieved from (17 January 2011) Indonesian Central Bureau of Statistics: Census 2010, Retrieved from Trading economies (2014) http://www.tradingeconomics.com/indonesia/urbanpopulation-growth-annual-percent-wb-data.html Retrieved from The World Factbook of Central Intelligence Agency: https://www.cia.gov/library/publications/the-world-factbook/geos/id.html

(2014,19th March) Retrieved from Trade Policy in swing http://www.eastasiaforum.org/2014/03/19/trade-policy-in-swing-indonesias-attitude-toliberalisation-and-the-tpp/ Indonesia Overview. (2014, October 1). Retrieved from The world bank:

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