Briefing Notes for the Launch in Jakarta, April 2007
- Indonesia's economy grew by 5.5 per cent in 2006, slightly lower than 5.6 per cent growth registered in 2005. The economic growth rate for 2006 is somewhat lower than the 5.9 per cent growth of the South-east Asian economies as a whole in 2006.
- Growth in private consumption and exports were the main contributory factor for the economic growth. By sector, services and industrial sectors contributed to most of the output growth.
- Export's growth at 16.2% in 2006 indicated a deceleration from last year's 20.1%. Imports growth also decelerated to 15.6% from 26.2 % in 2005. High commodity prices in the global market for its oil and gas and the buoyancy in the global trade helped Indonesia to maintain a decent growth rate in exports.
- Current account balance is expected to continue to be in surplus with an improvement over the past two years to 2.6 per cent of GDP. This is mainly a result of slower import growth due to low domestic demand.
- The balance of payments recorded a large surplus due to a surplus in the current account and larger capital and financial account surplus. The latter was boosted by high global liquidity and a stable macroeconomic environment, particularly towards the latter part of the year.
- Domestic investment contracted by about 10% over the year from 22.0% in 2005 to 20.2% in 2006.
- Behind this contraction in investment are higher borrowing costs as well as uncertainties in the business environment arising from delays in the implementation of reforms.
- Inflation over 13% was the highest among South-East Asian economies. This indicated a jump from 10.5% a year ago reflecting high oil prices and the impact of the removal of subsidies. However, the rate of inflation has come down since October 2006 to single digit levels and remains stable at around 6-7%.
- High interest rates at the beginning of the year to curb inflation allowed exchange rates to appreciate. Strong macroeconomic fundamentals (lower inflation, current account surplus, relatively low budget deficit and a balance of payment surplus) helped boost the rupiah towards the end of the year. The rupiah appreciated by 11% in 2006, somewhat higher than other currencies in the sub-region.
- Budget deficit has widened somewhat from 0.5% of GDP in 2005 to 1.6% of GDP in 2006. This is however, among the lowest in the region.
- This was the result of additional public expenditure to spur economic growth.
- Lack of bond markets is considered one of the reasons for the devastating effects of the Asian financial crisis in 1997. Yet, even 10 year after the crisis, the bond markets in many South-east Asian countries remain under developed and lacking liquidity.
- These symptoms are reflected in raw bid-ask spreads and shadow bid-ask spreads on corporate bonds. Indonesia has the highest spreads indicating lack of liquidity.
- For example, total bonds on issue in Indonesia in 2001-2005 were only 33% of GDP, the lowest in the South-east Asian region.
Outlook for 2007
- Economic growth is expected to accelerate to 6.2 per cent in 2007 from 5.5 per cent in 2006 due to higher investment boosted by lower interest rates and new pro-business regulations that are coming into effect and favourable business perceptions.
- Inflation is expected to slow down further to around 7 per cent with a drop in oil prices in the global market.
- Implementation of proposed reforms in tax, investment and labour laws and addressing structural weaknesses are key to boost investor confidence, which faded during 2006 and led to a contraction in investments. Maintaining macroeconomic stability is another key challenge.
- Indonesia loses about $ 2.4 billion a year due to inequalities in labour market participation of men and women.
- Indonesia's record on gender equality is somewhat comparable to other South-east Asian Countries such as Singapore and Malaysia but is better than most South Asian countries (except Sri Lanka). However, there is a huge gap between the Philippines, region's best performer, and Indonesia in many aspects.
- Overall, it is placed 68th in the global gender gap index 2006 ranking of 115 countries.
Gender gap in economic participation
- Female labour force participation is at 51% compared to 85% for men.
- Women receive roughly 20 less wage than men for similar work.
- Only 17 per cent of legislators, senior officials and managers are women.
- Women comprise 42% of professional and technical workers.
- Overall, Indonesia ranks 67th in the global gender gap index 2006 for economic participation and opportunity.
Gender gap in Educational attainment
- In Indonesia, women's literacy rate is 87% compared to men's 94%.
- There is a slight gap in enrolment in primary education (93% for girls against 95% for boys).
- Indonesia has been successful in maintaining gender parity in enrolment in secondary education.
- Overall, Indonesia is ranked 80th in the global gender gap index 2006 for educational attainment.
Gender gap in Health
- Healthy life expectancy for women at 58.9 years is slightly higher than 57.4 for men. This is also reflected in sex ratio of over 1000.
- However, high maternal mortality rate of 230, higher than the average of 166 for the South-east Asian sub –region, is a concern.
- Another concern is the fact that 37% of births are not attended by skilled health staff, a factor leading to a high maternal mortality rate.
Gender gap in political empowerment
- One of the fundamental reasons women are subject to discrimination is that they do not have a voice in decision making at home or society. This fact is relevant for Indonesia as well. For example, in Indonesia women in parliament account for less than 10% of the total seats.