ADB-Indonesia Partnership

Miniature replicas of the Indonesian flag. The country's economy is among the largest and strongest in Southeast Asia. Photo by: nSeika / CC BY

The biggest country in Southeast Asia, Indonesia also has one of the largest and strongest economies in the region. Amid a lackluster performance by various developing nations, Indonesia’s economy remained strong in 2012, posting 6.2 percent growth year on year.

But Indonesia’s economy has slowed down this year. From an optimistic estimate of 6.2 percent growth for 2013, the World Bank downgraded projections to just 5.3 percent. While Indonesia’s economy was affected by external drivers, weak exports and a deceleration in foreign direct investments are the main factors contributing to lower economic forecasts.

The slowdown in Indonesia’s economy is exacerbating the challenges the country is currently facing in addressing its development challenges, including meeting Millennium Development Goals. The country is not expected to achieve targets on reducing maternal mortality and HIV and AIDS incidences, and ensuring environmental sustainability. And although Indonesia’s poverty indicators show marked improvement, more than half of its population continues to live on less than $2 a day.

Weak governance and insufficient employment opportunities are major challenges as well. Despite strong expansion in the past two years, economic growth in Indonesia has not translated into quality jobs. At present, the informal sector provides 60 percent of available jobs. In addition, about one-third of the labor force is unemployed.

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