World Bank: Indonesia World’s 10th Largest Economy

World Bank: Indonesia World’s 10th Largest Economy

By Jakarta Globe on 11:29 pm May 04, 2014

  1.  Indonesia has the 10th largest economy in the world, according to a recent report by the World Bank, with the country contributing 2.3 percent of global economic output.

The report released the findings of the 2011 International Comparison Program (ICP), which assesses economies based on purchasing power parity (PPP) and noted that Indonesia moved up six places and leapfrogged more developed countries such as Spain, South Korea and Canada.

The ICP round gathered over 7 million prices from 199 economies in eight regions, with assistance from 15 regional and international partners.

In the top nine are the United States, China, India, Japan, Germany, Russia, Brazil, France and Britain.

The middle-income economies of Indonesia, China, India, Russia, Brazil and Mexico now account for 32.3 percent of world gross domestic product. That compares with the 32.9 percent contributed by the six largest high-income economies, United States, Japan, Germany, France, United Kingdom, and Italy. The report also showed that the United States was about to lose its status as the world’s biggest economy, as China is likely to surpass it by the end of this year, faster than widely anticipated.

The United States has been the biggest economy in the world since overtaking the United Kingdom in 1872.

The Organization for Economic Cooperation and Development (OECD) has predicted that China will overtake the United States by 2016 while China itself is hoping to become number one by 2019. According to the report China’s GDP was nearly 87 percent of the US GDP in 2011, while India had moved up from being in 10th position in 2005 to the third-largest economy, overtaking Japan.

However, some say the PPP is just one measure to judge the performance of the world’s economies and that developing nations like India and China still have a lot of catching up to do.

“When, for example, we measure international purchasing power expressed in dollars, which matters in international trade, the United States, Europe and Japan continue to be the dominant economies in the world,” Frederic Neumann, co-head of Asia economic research at HSBC in Hong Kong said as reported by International Business Time, which quoted CNBC.

President Susilo Bambang Yudhoyono was quick to respond. “This morning I received a report that Indonesia has become the world’s 10th largest economy. Thank God, it is all of our efforts and hard work,” he said through his twitter account.

He said the nation continues working to reach higher levels of prosperity.

“This is of course a good start. But we still have a long way to go as we are facing many challenges. However, God willing, we can overcome those challenges,” he told a gathering in Jakarta later in the day.

Finance Minister Chatib Basri said the achievement was an endorsement of the government’s economic policy. “That means Indonesia’s economy is on the right track and we have made significant progress because a couple years ago we were in 16th position,” Chatib said, as quoted by Detik on Sunday.

But many other reports pointed out that while the rise of Indonesia should be praised, it has an uneven growth rate, with a widening gap between rich and poor.

Citing a forthcoming report by the World Bank, the Economist warned that real consumption grew by about 4 percent a year on average from 2003 to 2010. But for the poorest 40 percent of households it grew by only 1.3 percent. In contrast, consumption by the richest 20 percent grew by 5.9 percent.

Based on this data, the magazine concluded that the rich are getting richer much more rapidly than the poor.

The growing inequality between low-income groups and high-income groups has also been indicated by the country’s worsening Gini coefficient — which represents income disbursement — from 0.29 in 2000 to 0.38 in 2011, a drop of almost a third in equality.

The Economist also points to the fact that the informal sector accounts for 70 percent of the country’s GDP, meaning that the vast majority of Indonesia’s working population has no guarantee of minimum wage and protection from the government.

People are forced to go informal because manufacturing in Indonesia is hamstrung by decrepit infrastructure, rigid labor laws and protectionist policies that make it difficult for its factories to be competitive, according to the magazine.

Indonesia has increased its social spending, the magazine reported, adding that the government has bold plans to introduce universal health care by 2019.

However, government spending is still skewed towards the rich, with about 20 percent of the central government’s budget, or 282 trillion rupiah ($24.5 billion) this year, going on energy subsidies. Cheap gasoline benefits the rich, who are its biggest consumers.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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