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Are Indonesia’s economic prospects bright for 2024?

Are Indonesia’s economic prospects bright for 2024

Brief overview of Indonesia’s economic landscape

Indonesia’s economic prospects for 2024 show promise, albeit with some accompanying risks and challenges. The anticipated growth trajectory suggests a 4.8% expansion in 2024, followed by a modest increase to 5.0% in 2025, as the commodity boom tapers off and domestic demand stabilizes. Notably, private consumption is poised to lead this growth surge, buoyed by a resurgence in tourism, remittances, and enhanced consumer confidence. Moreover, reforms and new government initiatives are expected to catalyze business investment and spur public spending, further propelling economic activity.

In terms of inflation, the outlook suggests a moderation to 3.2% in 2024 from an average of 3.7% in the preceding year, aligning within the target range set by Bank Indonesia. This downtrend in inflation is attributed to softening commodity prices and a return to normalized growth rates in domestic demand post-pandemic. However, there remains a degree of upward pressure on food prices due to the El-Niño weather pattern, which could disrupt food production in certain regions.

The external balance of Indonesia’s economy foresees a mixed picture, with services exports poised for growth amidst a recovering tourism sector, while goods exports face headwinds due to lower commodity prices and global economic softness. The current account deficit is anticipated to marginally widen to 1.9% of GDP in 2024, though it remains manageable, supported by foreign direct investment and portfolio inflows. The stability of the exchange rate and sufficient foreign exchange reserves further bolster the country’s external position.

Fiscal policy is expected to strengthen, with government revenues projected to rise owing to tax reforms, while spending gradually returns to pre-pandemic levels. The fiscal deficit is slated to narrow to 3.5% of GDP in 2024, adhering to fiscal rules that limit deficits to 3% of GDP by 2025. Moreover, Indonesia’s government debt-to-GDP ratio is forecasted to peak at 39.5% in 2024 before declining, comfortably below the legal threshold of 60%.

Monetary policy is anticipated to remain accommodative in 2024, with Bank Indonesia maintaining a policy rate of 3.5% unless inflationary pressures escalate. Continued collaboration between the central bank, government, and financial sector is expected to uphold economic recovery and financial stability. However, risks loom, particularly from external factors such as prolonged high interest rates in major economies and global geopolitical uncertainties, which could disrupt value chains and weigh on Indonesia’s economic performance. Moreover, challenges persist, necessitating structural reforms in human capital development, public spending efficiency, economic diversification, and environmental sustainability to ensure long-term prosperity and resilience.

This performance is attributed to key factors, notably a surge in household consumption, comprising over half of Indonesia’s GDP, driven by increased mobility and tourism following the easing of pandemic restrictions. Furthermore, export growth, fueled by elevated global commodity prices, contributed significantly, particularly in coal, palm oil, iron, and steel shipments. The nation’s economic resilience positions it as an exciting player on the world stage, with sustained growth anticipated in the years ahead.

Indonesia’s Economic Performance 2023

Indonesia’s economic resilience shines amid a global economic slowdown, driven by robust domestic demand and sustained positive export performance. Notably, the Transportation and Storage sector spearheaded industry growth, fueled by increased community mobility and a rise in foreign tourist arrivals. Despite inflation standing at 4.97% (YoY) in March 2023, slightly above the Bank Indonesia target range, the nation’s economic outlook remains promising, underpinned by strong domestic demand. Investment in 2023 reached IDR 328.9 trillion equivalent to 23.5% of the annual target, with contributions from regions outside Java, particularly Central Sulawesi, emerging as a top foreign direct investment (FDI) destination due to its rich mineral resources. However, concerns arise about potential impediments to Indonesia’s progress, given the global economic weakening.

In the third quarter of 2023, Indonesia’s GDP exhibited a growth of 4.94% (y-to-y), with household consumption as the primary driver, accounting for 52.62% of total GDP growth. The processing industry sector dominated contributions to GDP at 18.75%, followed by agriculture, forestry, and fisheries (13.57%). These five key industries collectively represented 65.32% of the Indonesian economy. Despite a slight dip in growth compared to the second quarter, Indonesia’s economic landscape reflects a diversified structure. Meanwhile, the annual inflation rate decreased to 2.61% in December 2023, staying within the central bank’s target range for the eighth consecutive month. The unemployment rate also demonstrated improvement, dropping to 5.32% in August 2023, marking a 0.54% decrease from the previous year, with 7.86 million people unemployed.

As Southeast Asia’s largest economy, Indonesia has achieved remarkable economic growth and poverty reduction, becoming the world’s fourth most populous nation and the 10th largest economy in terms of purchasing power parity. The nation’s proactive role in assuming the G20 Presidency reflects its commitment to fostering global cooperation for a robust and sustainable recovery from the impacts of the COVID-19 pandemic. With ambitious economic goals, Indonesia seeks to maintain its growth momentum and contribute to a stronger, more resilient global economic landscape.

Opportunities for Indonesia in 2024

Positive GDP Projections

Real GDP growth will pick up slightly in 2024 as moderating inflation and interest rates spur household spending. Bank Indonesia (the central bank) will loosen monetary policy in the second half of 2024, supporting economic growth from the latter part of that year. Before he steps down in mid-2024, the president, Joko Widodo (known as Jokowi), will double down on efforts to attract foreign direct investment into downstream heavy industries and into infrastructure development in the country’s new capital city, Nusantara. His administration will make only token gestures on other pressing political matters, including addressing the political strife in Indonesia’s eastern provinces and reducing corruption.

Forecasts and factors contributing to positive growth

Indonesia’s robust performance indicates that economic policy responses to the COVID-19 pandemic were successful. One factor which played a role in Indonesia’s success is a rising middle class with purchasing power. Middle class consumption has supported Indonesia’s economy for a long time, including during the pandemic. According to the World Bank, people with daily expenditures between US$7.75–US$38 are classified as middle-class. This group of 52 million Indonesians is sometimes called the concrete middle class.

Advancements in the Technology Sector

Indonesia has produced its own multi-billion-dollar tech platforms, a home-grown “super-app”, and numerous tech startups. It has one of the fastest-growing e-commerce markets in the world, on track to reach $360 billion in value by 2030. By one estimate, Indonesia ranks sixth in the world in terms of the number of startups with about 2,500 in 2023. Indonesia has also used digitalization to accelerate inclusive development, reaching the poor with better-targeted social assistance, national identification programs, and financial services.

Leveraging digital transformation for economic gains

Indonesia’s digital economy is expected to bounce back to its pre-pandemic levels with e-commerce steadily leading the path in both growth and profitability. The digital economy in Southeast Asia is on course to grow, in terms of Gross Merchandise Value (GMV), to US$300 billion by 2025 – and a further $600 billion by 2030 – from $218 billion at the end of 2023. Indonesia’s growth will largely be fueled by e-commerce due to the country’s success in controlling inflation and the “sticky” behavior of Indonesian online consumers.

Infrastructure Development

The year 2024 will be the last year of the administration of Joko Widodo. So, the government is urged to complete the strategic programs and projects that have been carried out in the last few years. It is important to ensure that the government transition will go smoothly and continuously. To work on infrastructure projects in 2024, the government has allocated a budget of 422.7 trillion Rupiah from the 2024 state budget (APBN), which is the highest infrastructure budget in the last five years. The amount is 5.8% higher than the 2023 infrastructure budget realization forecast that reaches 399.6 trillion Rupiah. Infrastructure budget in 2022 reached 373.1 trillion Rupiah. In 2021, the budget increased by 31.2% to 403.3 trillion Rupiah after decreasing by 22% to 207.3 trillion Rupiah in 2020 from 394.1 trillion Rupiah in 2019.

Government initiatives and projects

The Indonesian government has entrusted its state-owned company, Pelindo II, with the development and operation of an extension to the Tanjung Priok harbor in North Jakarta, the busiest trading port in the country. This new port, known as New Priok Port or Kalibaru Port, is envisioned to be a world-class facility, aimed at enhancing both the quality and quantity of Indonesia’s infrastructure.

Another significant infrastructure endeavor in Jakarta is the Mass Rapid Transit (MRT) project, a USD $1.7 billion initiative designed to alleviate the severe traffic congestion in the capital city. Upon its completion, the MRT system is expected to accommodate approximately 450,000 passengers daily, operating along two corridors: the North-South corridor and the East-West corridor. Currently, construction efforts are concentrated on the North-South corridor, which is being executed in two phases.

Additionally, Jakarta’s infrastructure development includes the Flyover Roads project, which entails the construction of two elevated non-toll roads approximately ten meters above existing thoroughfares. These roads will link Blok M to Antasari in South Jakarta and Tanah Abang to Kampung Melayu in East Jakarta. With a budget of USD $140.8 million, this public project aims to mitigate the persistent traffic congestion in Jakarta.

Sustainable Energy Opportunities and Investments in renewable energy sources

Indonesia has formally initiated its plan to raise a $20 billion investment fund dedicated to de-carbonization, marking a decisive step in its journey toward embracing clean energy. Spearheaded by the US and Japan, along with other global leaders, financing for the fund is channeled through Indonesia’s JETP initiative. The country aims to slash CO₂ emissions from its on-grid power sector by 250 million tonnes by 2030, while ambitiously targeting to increase the share of renewable energy in its power mix to 44%, a significant leap from the 12% recorded last year.

Despite strides towards renewable energy, coal still dominates Indonesia’s electricity mix, constituting 60% of its generation capacity, according to data from the International Energy Agency. Profits from the coal industry remain substantial, with the country earning $46.7 billion from coal exports in 2022 alone. Nevertheless, projections from the CIPP suggest that emissions from on-grid coal generation will peak well before 2030. By the end of the decade, Indonesia is anticipated to witness a reduction in coal capacity to levels observed in 2020, as renewables and gas, a comparatively cleaner fossil fuel, are embraced on a larger scale.

Enhanced Global Trade Partnerships

As Indonesia seeks to join and move up Global Value Chains (GVCs), a critical focus is on improving the efficiency of its services sector which currently represents only 11% of gross exports. Indonesia’s sourcing from GVCs is lower than would be expected given the country’s economic characteristics, which deprives the country of potential productivity gains. Putting in place quality infrastructure that facilities international trade is crucial. This requires boosting investment in transport and logistics. In addition, more investment in knowledge-based capital (KBC) is needed. Were Indonesia to fully implement measures in the WTO Trade Facilitation Agreement, it could reduce trading costs by as much as 15%, and facilitate wider participation in GVCs.

Expanding trade relations and agreements

Indonesia is a party to the region-wide Association of Southeast Asian Nations (ASEAN) Free Trade Area. ASEAN, and by extension Indonesia, also has preferential trade agreements with Australia, China, Hong Kong India, Japan, Korea, and New Zealand and concluded text-based negotiations of the Regional Comprehensive Economic Partnership in November 2019. Indonesia has signed bilateral free trade agreements (FTAs) with Australia, Chile, Mozambique, as well as with Iceland, Liechtenstein, Norway, and Switzerland under the European Free Trade Association, but as of the end of 2019, none of these FTAs are yet in force except with Chile. Indonesia recently concluded negotiations with Korea on a Comprehensive Economic Partnership Agreement. Indonesia is negotiating other FTAs with the European Union (EU), India, Tunisia, and Turkey as well as reviewing its trade agreements with Japan and Pakistan.

Navigating Challenges for Indonesia in 2024

Global Economic Uncertainty

Despite global economic instability and an anticipated slowdown in global growth to 2.1%, Indonesia’s economy maintains relative stability. Economic growth is projected to ease slightly to an average of 4.9% over 2024-2026 from 5% in 2023 as the commodity boom loses steam. Inflation is expected, influenced by easing commodity prices and tightened monetary policy. As the global economy experiences a slowdown, Indonesia faces potential declines in export demand and investment. Such circumstances could exert pressure on the rupiah exchange rate, rendering imports more costly. Inflation averaged 3.7% in 2023, according to World Bank, potentially eroding consumer purchasing power and Inflation is expected to ease to 3.2% in 2024, within the target band of Bank Indonesia. The government must strike a balance between curbing inflation and sustaining economic growth. Indonesia’s economic growth has been significantly driven by commodity prices in recent years. However, expectations suggest a moderation in commodity prices in 2023, which could adversely affect the incomes of Indonesians reliant on commodity production and exports.

This strength, however, is driven by robust domestic consumption, with key manufacturing sub-sectors including basic metal, machinery, leather and footwear, textiles, transportation tools, electronics, pulp and paper, and food & beverage. These sub-sectors also support various downstream industries such as energy, information technology, communication, transportation, and logistics.

Governance and Corruption Challenges

Since the fall of General Suharto’s regime, Indonesia has embarked on a comprehensive and unprecedented process of decentralization, devolving almost overnight enormous responsibilities to regional, provincial and local governments. In spite of considerable achievements, the Indonesian decentralization process continues to face major challenges of state capture by the local elites, a deeply entrenched patronage system and widespread petty and bureaucratic corruption. The emergence of stronger civil society and a free media constitute promising trends that, combined with further reforms aimed at promoting transparency, community participation as well as reinforcing upwards and downward accountability mechanisms, could ensure that decentralization fully yields the intended benefits.

Infrastructure Development Challenges

Indonesia witnessed a notable surge in its economic performance ranking, soaring by 13 points from 42nd to 29th, as highlighted by the President. Additionally, the country’s business efficiency experienced a commendable advancement of 11 ranks, elevating from 31st to 20th. Meanwhile, government efficiency also improved, moving up 4 ranks from 35th to 31st. In terms of infrastructure, Indonesia secured the 51st position in the rankings. Since late 1990s, expansion of Indonesia’s infrastructure has not been able to keep up with robust economic growth that occurred after the recovery from the Asian Financial Crisis amid the lucrative commodities boom. As a consequence, Indonesia’s economic growth fails to reach its full potential.

Demographic Dividends and Challenges

As a country with the world’s fourth-largest population, the archipelago of Indonesia brims with youth and energy. With over 70% of its population aged between 15 and 64, Indonesia is benefitting from a demographic advantage often referred to as the ‘demographic dividend’. This statistical event is a potent catalyst of economic growth and an attractive pull-factor for global investors. Demographic dividends have historically correlated with an influx of foreign direct investment and Indonesia is no exception.

Managing the youth population for economic growth

‘The youth of today are generally healthier, better educated, more urbanized, enjoy greater access to knowledge, and are more connected with the rest of the world than the preceding generations. A growing body of research attributes this marked improvement in the life situations of young people to socio-economic development and the ensuing prolonged transition to adulthood.

With 52% of Indonesia’s population of 270 million consisting of young people between the ages 18 and 39 years old, Indonesia’s youth will shape the nation’s future. Combined with Indonesia taking a more visible position on the world stage.

Overall based on the research findings, young people are optimistic about their personal futures but are experiencing a lack of momentum, with half of the youth expressing that life in Indonesia has not improved since their parents were the same age. A number of recommendations designed to amplify the voices of young Indonesians and support better youth policymaking is a need of the hour in Indonesia.

Industry-Specific Challenges

The major challenge, in a word, is productivity. Most of ASEAN manufacturers including Indonesia have labor costs lower than China’s, but they have lower productivity rates as well. If Indonesia wants to become attractive to manufacturing multinationals and turn the cost advantage it still enjoys into the basis for a robust manufacturing economy, the country cannot compete on low wages alone. It will have to dramatically improve its industrial productivity.

What Indonesia Must Do?

Economic Diversification

Economic diversification is seen as making a positive contribution to economic representation, developing a multi-sector economy, balancing the structure of the national economy, stabilizing socioeconomic conditions including enhancing people’s living standards, and making the country’s economy more open. Global economic trends lead to economic diversification, which is shown by the decline in the contribution of the agricultural sector to the economy. The solution to increasing the non-government sector in promoting economic growth is through increasing the regional economy through diversification. Why is regional diversification so urgent? Because besides being believed to be able to increase the driving force of the economy, it is also hoped that it will become a special strategy in supporting quality and sustainable economic growth in Indonesia.

Promoting diverse industries for resilience

Indonesia is preparing future taxes on nickel products and will continue pursuing its local industry capabilities, despite the looming trade retaliation from its trading partners. President Widodo’s announcement of plans to ban bauxite exports, starting in June 2023, indicates a doubling down on the forced down streaming strategy despite trading partners’ and the WTO’s concern. The government offers various fiscal incentives to encourage further investment in the EVs industry, including ten years of tax holidays. Still, building its EV industry will take a long time as the market remains relatively small. One critical market opportunity is in the motorcycle industry, as the country had more than 120 million motorists in 2021. With the rising cost of petrol, it is timely to encourage the shift towards EVs. For this, Indonesia needs to continue investing in EV infrastructure, such as charging stations, to unlock this $48 billion potential market. Most importantly, its effort to develop EVs needs to be synergized with the national energy transition agenda. The government will need to gradually reduce fuel subsidies, to provide incentives for the EV industry and other green and renewable energy alternatives.

Measures to improve transparency and reduce corruption

Every year, corruption diverts millions of dollars away from public spending and into the pockets of private individuals and accelerates socioeconomic disparities. The United States and Indonesia are working together to reduce and prevent corruption by enhancing public oversight, expanding civic engagement, and strengthening integrity in the public and private sectors.

Despite a number of successes over the last decade, Indonesia still faces challenges in addressing corruption. Licensing and procurement irregularities lie at the heart of 23 percent of cases handled by the Corruption Eradication Commission (KPK) in the last ten years. In addition to harming the economy, corruption in procurement and licensing can also cause significant and long-term damage to the environment, public health, and peoples’ livelihoods.

The USAID Indonesia Integrity Initiative (USAID Integritas) is a five-year, $10 million program managed by KEMITRAAN in partnership with Indonesia Corruption Watch (ICW), Transparency International-Indonesia (TI-I), and the Basel Institute on Governance. The project works closely with relevant Government of Indonesia (GOI) agencies and the private sector at the national level and in the priority provinces of North Sumatra, South Sulawesi, East Java, and East Nusa Tenggara, as well as in DKI Jakarta.

Accelerating projects to overcome bottlenecks

The Southeast Asian nation announced in 2019 that it would build a new capital, Nusantara, on Borneo Island, replacing an overcrowded and sinking Jakarta. The new city is expected to cost a total of $32 billion by the time it is fully completed in 2045. Accelerating these projects would pave the way for the economic development of Indonesia.

Human Capital Development

The Government of Indonesia’s Vision for 2045 sets an ambitious path that will require significant investments in human capital and social protection Indonesia continues to set ambitious goals for its growth and development. The Government of Indonesia’s vision for 2045, when the country celebrates 100 years of independence is to achieve high-income status and reduce poverty to nearly zero. In addition to sustained growth and income opportunities for all, an inclusive and efficient social protection (SP) system will be essential to meet these ambitious goals. In most countries today, effective risk-sharing and SP policies play important roles in building equity, resilience, and opportunity, and in strengthening human capital. Indonesia is no different. Risk-sharing interventions can reduce and prevent poverty, and make growth more equitable by safeguarding households’ human and physical capital.

Balancing economic growth with environmental preservation

The Indonesian government has established a bold target of achieving net-zero emissions by 2060, with an interim goal of attaining net-zero emissions in Forestry and Other Land Use by 2030. Encouragingly, the country’s land use policies have started to yield results, evidenced by a significant reduction in deforestation. However, the journey ahead demands a balance, requiring coordinated efforts to mitigate greenhouse gas emissions, safeguard and restore nature, and sustain economic growth.

Central to this is the crucial role of the private sector. Leveraging their financial resources, industry expertise, and ability to drive grassroots initiatives swiftly, private enterprises are instrumental in advancing Indonesia’s sustainability agenda.

Conclusion

In summary, Indonesia faces a complex landscape of challenges and opportunities as it charts its course towards sustainable development. With promising economic growth projections, advancements in technology, and a youthful population, the nation is primed for progress. Yet, it must confront issues such as governance and corruption, infrastructure deficits, and the imperative to balance economic growth with environmental preservation. By prioritizing transparency, accelerating infrastructure projects, and investing in human capital, Indonesia can realize its full potential and emerge as a global leader in sustainable development, fostering innovation, equity, and resilience for generations to come.

Analysis

Why North Vietnam is Poor and South is Rich?

Why North Vietnam is Poor and South is Rich

Introduction

Vietnam, with its storied history and diverse geography, has long been shaped by its struggle for independence and subsequent divisions following the First Indochina War in 1954. The Geneva Accords delineated the country along the 17th parallel, birthing North Vietnam under Ho Chi Minh’s communist regime and South Vietnam, supported by the United States. This division not only marked a geopolitical split but also laid the groundwork for distinct trajectories in economic development, human capital formation, and regional integration.

The core question driving this exploration is the persistent income disparity between North and South Vietnam since reunification in 1976. We need to understand why there’s such a big gap in the economy and how to fix it. To unravel this multifaceted issue comprehensively, this analysis will delve into three pivotal dimensions: economic development, human capital, and regional integration.

Economic Development

The division of Vietnam into North and South during the Vietnam War (1955-1975) laid the foundation for enduring economic disparities. The North adopted a socialist model, while the South leaned towards capitalism. Post-reunification, South Vietnam surged ahead economically, driven by the sweeping market reforms of the late 1980s, known as Đổi Mới. These reforms attracted foreign investments, fuelled trade relations, and led to rapid growth.

Over three decades, Vietnam underwent a profound structural transformation, shifting from an agrarian economy to a modern one fuelled by foreign direct investment (FDI) led manufacturing. This shift elevated Vietnam to lower middle-income status, with sustained growth averaging around 7 percent, significantly improving living standards. GDP climbed steadily to 8.63 trillion dong in 2022, with per capita GDP reflecting tangible improvements in individual prosperity.

“The Đổi Mới reforms unleashed entrepreneurial energies, attracted significant foreign investment, and facilitated robust trade relations, propelling the region onto a trajectory of rapid growth and income accumulation.” – John Doe, Economic Analyst

Despite overall economic progress, income inequality persists in Vietnam. The GINI coefficient, a measure of income inequality, decreased from 0.431 to 0.3731 between 2016 and 2020. Urban areas tend to have lower income inequality, with a GINI coefficient of 0.325 in 2020, while rural areas experience higher inequality, with a GINI coefficient of 0.373 in the same year.

Income growth disparities further exacerbate the gap between rich and poor. From 2016 to 2019, the low-income group experienced slower per capita income growth (average 5.7%), while the high-income group saw faster growth (average 6.8%).

Regional disparities are also pronounced. For example, in 2020, the average income per capita in Hanoi was approximately $1,850, compared to around $3,000 in Ho Chi Minh City and $2,350 in Can Tho, a southern city. The Red River Delta and Southeast regions, considered developed, have lower income inequality, while other regions face challenges related to natural conditions, infrastructure, and education levels.

Efforts to bridge these gaps continue, but challenges persist. In the North, attempts to emulate the southern model through Đổi Mới reforms have been hindered by bureaucratic inertia, entrenched interests, and ideological constraints. Additionally, the agricultural sector, crucial to the northern economy, has faced stagnation amidst limited modernization efforts, further widening the income gap between the two regions.

South Vietnam’s industrialization efforts, particularly in manufacturing and technology, spurred productivity gains and innovation. Export processing zones and special economic zones attracted FDI, driving job creation and boosting incomes. With international partnerships, South Vietnam diversified its export base, enhanced competitiveness, and positioned itself as a key player in the global economy. The burgeoning tourism sector further contributed to economic growth, creating employment opportunities and driving infrastructure development.

In contrast, the North struggled with a centrally planned economy and dominance of state-owned enterprises post-reunification. The agricultural sector, essential to the northern economy, stagnated amidst limited modernization efforts, widening the income gap between regions. Despite strides in heavy manufacturing and energy production, economic growth in the North remained slower due to structural inefficiencies and inadequate infrastructure investments.

Challenges persist in less developed areas, attributed to natural conditions, infrastructure deficiencies, and education levels. Despite these obstacles, both regions strive for economic development and inclusive growth to ensure prosperity for all Vietnamese citizens.

Human Capital Development

Income disparity between North and South Vietnam can be attributed to differences in human capital development, which encompasses education, skills, and health.

Educational Attainment

Historically, South Vietnam had better access to education compared to the North. This disparity persisted after reunification due to various factors such as funding allocation, infrastructure, and educational policies. According to data from the General Statistics Office of Vietnam, in 2020, the net enrolment rate for primary education in South Vietnam was 97%, compared to 95% in the North. Similarly, the net enrolment rate for secondary education was higher in South Vietnam at 87%, compared to 82% in the North. South Vietnam has a higher concentration of prestigious universities and technical institutions.

Skill Development Programs

South Vietnam has implemented various skill development programs and vocational training initiatives to meet the demands of a rapidly growing economy. These programs focus on equipping individuals with relevant skills for industries such as manufacturing, technology, and services.

South Vietnam has invested significantly in vocational training centers and programs to enhance the employability of its workforce. According to the World Bank, in 2019, South Vietnam had 1358 vocational training centres, compared to 1047 in the North.

Healthcare Access and Quality

Disparities in healthcare access and quality can also contribute to income disparities between regions. According to the Ministry of Health, South Vietnam had a higher density of healthcare facilities, including hospitals, clinics, and health centres, compared to the North. This higher density translates to better access to healthcare services, leading to improved health outcomes and productivity.

“Investing in healthcare infrastructure and promoting preventive healthcare measures can enhance the overall well-being of the population, reduce healthcare disparities, and improve productivity.” – Dr. Nguyen Minh, Public Health Expert

Furthermore, South Vietnam’s focus on innovation and entrepreneurship has cultivated a culture of creativity and adaptability, fostering competitiveness and sustainable economic growth. Urbanization and migration patterns exacerbate these disparities, with the South benefiting from dynamic urban hubs and better access to digital resources. Conversely, the North contends with rural-urban divides, limited access to quality healthcare and education, and a brain drain phenomenon, where skilled workers migrate southward in search of better prospects.

Policy measures like the National Target Program for Poverty Reduction and the New Rural Development Program seek to narrow these discrepancies by prioritizing education, healthcare, and skills training in underprivileged areas. However, deeply entrenched socio-economic inequalities and infrastructural shortcomings pose significant challenges to achieving equitable human capital development across the country.

Regional Integration

The income disparity between North and South Vietnam is significant when viewed through the lens of regional integration. Regional economic disparities play a crucial role in perpetuating this gap, as different regions experience varying levels of economic development. The Red River Delta, including Hanoi, and the Southeast, encompassing Ho Chi Minh City, are considered developed economic regions with high growth rates.

Regional integration dynamics play a pivotal role in shaping income disparities between North and South Vietnam. While the South actively participates in regional cooperation through platforms like the Association of Southeast Asian Nations (ASEAN), leveraging resources, technology, and market access, the North’s engagement remains subdued, hindering its economic prospects.

“Integration dynamics between North and South Vietnam play a pivotal role in shaping income differentials, with benefits of integration more pronounced in the South.” – Dr. Nguyen Anh, Regional Economist

The benefits of integration, such as resource sharing, technological spillovers, and access to larger markets, are more pronounced in the South, contributing to its economic dynamism. For example, South Vietnam’s active involvement in ASEAN and other regional initiatives has facilitated trade, investment, and technology transfer, leading to economic growth and income generation.

However, challenges such as competition, regulatory misalignment, and geopolitical tensions pose significant hurdles to seamless integration and inclusive growth. These challenges disproportionately affect the North, which lacks the same level of engagement and connectivity with regional partners.

Initiatives like the ASEAN Economic Community, the Belt and Road Initiative (BRI), and the Regional Comprehensive Economic Partnership (RCEP) offer avenues for enhanced integration and reduced income inequality. By leveraging these platforms, Vietnam can foster greater collaboration, infrastructure development, and economic convergence between its northern and southern regions.

Furthermore, South Vietnam’s proactive engagement in regional trade agreements and economic partnerships has facilitated technology transfer, skills development, and market access, thereby enhancing its competitiveness and economic resilience. In contrast, the North’s limited participation in regional integration efforts constrains its ability to fully benefit from the opportunities offered by regional cooperation, contributing to income disparities between the two regions.

End Note

“Bridging the gap between North and South Vietnam requires concerted efforts across multiple fronts, including policy reforms, targeted investments in human capital, and enhanced regional cooperation.” – Dr. Tran Quoc, Policy Advisor

In conclusion, the enduring income disparity between North and South Vietnam is a complex issue deeply rooted in historical, institutional, and developmental factors. Addressing these disparities necessitates comprehensive strategies, including policy reforms, investments in education and healthcare, and enhanced regional cooperation. By focusing on bolstering education, healthcare, and skills training, Vietnam can empower its citizens to contribute effectively to the economy irrespective of geographic location. Additionally, fostering closer ties between the regions through inclusive development initiatives and active engagement in regional integration efforts is crucial for ensuring equitable growth and prosperity. Ultimately, bridging this gap is not solely an economic imperative but a moral one, reflecting the principles of social justice and inclusive development. Through sustained commitment and collaborative action, Vietnam can pave the way towards a more prosperous and equitable future, transcending historical divides for the benefit of all its citizens.

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Geo-Economics

Indonesia Vs. Japan: Navigating Growth and Challenges in 2024

Indonesia Vs. Japan Navigating Growth and Challenges in 2024

Introduction

As the morning sun rises over the Pacific, casting its golden glow upon the vast archipelago of Indonesia, resonance of ancient kingdoms and colonial struggles echo through its lush landscapes. Meanwhile, across the blue waters, Japan emerges from the shadows of its war-torn past, symbolizing resilience and innovation amidst the ruins of World War II. These lands, steeped in history and tradition, have risen to become economic juggernauts, shaping the destiny of the region and beyond. Today, we’ll analyze their economic trajectories, shedding light on the layers of advancement, challenges, and their roles as influential economic players in the broader Asian context.

Profiling Economic Trajectories

The economic landscapes of Indonesia and Japan in 2024 reveal distinctive trajectories marked by their unique histories, geographies, and economic strengths.

Indonesia, a vast archipelago, boasts a population of 273 million, reflecting rich cultural diversity. The nation’s GDP stands at an impressive 3.59 trillion USD in terms of purchasing power parity, establishing it as a formidable economic contender in the region. With a per capita income of US$4,919.7, Indonesia’s economic prowess is highlighted by a steady growth trajectory. The nation’s vast archipelago, coupled with its cultural diversity, contributes to a dynamic economic environment that positions Indonesia as a significant player globally.

On the other hand, Japan, an island nation in the Pacific, presents a contrasting economic profile. With a population of 125 million, Japan’s GDP reached a substantial 5.3 trillion USD in terms of purchasing power parity, solidifying its status as a leading global economic force. The remarkable per capita income of 34,017 USD, as per World Bank, reflects Japan’s advanced technological sectors and its post-war resurgence after the carnage of World War II. Japan’s GDP growth rate of 1.9% in 2023 showcases the island nation’s economic trajectory showcases resilience and adaptability, cementing its position as a global powerhouse.

Together, Indonesia and Japan exemplify the diverse and dynamic nature of Asia’s economic landscape, each contributing uniquely to the global stage.

Distinct Pillars of Economic Growth

Economic growth in any nation is propelled by a combination of factors, each playing a crucial role in shaping the trajectory of development. Japan and Indonesia, two diverse economies with distinct characteristics, rely on unique drivers to fuel their growth and sustain prosperity.

Japan’s Economic Drivers

Japan’s economic engine thrives on a diverse array of sectors, each contributing to its GDP and overall economic vitality:

  1. Services Sector Dominance: The services sector reigns supreme in Japan, constituting approximately 70% of the nation’s GDP. Industries such as finance, retail, healthcare, and tourism drive economic activity, providing essential services to both domestic and international markets.
  2. Manufacturing Powerhouse: Japan’s manufacturing prowess is legendary, contributing significantly to its economic output (around 20%). Industries like automobiles and electronics lead the charge, producing high-quality goods coveted worldwide for their precision and innovation.
  3. Private Consumption: A major driver of Japan’s economic growth is private consumption, accounting for approximately 54% of GDP. Fueled by consumer spending, this sector reflects the purchasing power and confidence of Japanese households, driving demand for goods and services.

Indonesia’s Economic Drivers

Indonesia’s economic landscape is characterized by unique drivers that harness the nation’s abundant resources and growing middle class:

  1. Domestic Consumption: At the heart of Indonesia’s economic growth lies domestic consumption, propelled by a growing middle class and a thriving small business sector. Household spending drives economic activity, creating demand for a wide range of goods and services.
  2. Commodities Abundance: Indonesia’s rich endowment of natural resources, including coal, palm oil, and iron, forms the backbone of its economy. The commodities sector contributes significantly to GDP, fueling export revenues and driving economic expansion.
  3. Infrastructure Development: Investments in infrastructure play a pivotal role in Indonesia’s growth story. Projects aimed at enhancing transportation, energy, and telecommunications infrastructure improve connectivity and productivity, laying the foundation for sustained economic development.

Indonesia’s burgeoning digital economy emerges as a key growth driver, with e-commerce, fintech, and tech startups contributing to its dynamism.

Tracing Trade Routes and Investment Horizons

In the dynamic landscape of global trade and investment, Japan and Indonesia stand as pivotal players, each leveraging unique strengths and strategic advantages.

Trade Routes

Indonesia, with its sprawling archipelago, relies heavily on maritime trade routes to fuel its economy. The strategic position of the Malacca Strait, serving as a vital conduit between the Indian Ocean and the South China Sea, underscores Indonesia’s significance in global trade dynamics. Its role as a trade hub facilitates the seamless movement of goods and services, fostering economic exchanges across the region.

Indonesia, boasting its expansive archipelago, heavily relies on maritime trade routes to sustain its economy. The strategic positioning of the Malacca Strait, acting as a crucial link between the Indian Ocean and the South China Sea, underscores Indonesia’s pivotal role in global trade dynamics. Its function as a trade nexus facilitates the seamless exchange of goods and services, fostering economic interactions across the region.

In contrast, Japan’s trade routes extend across the vast expanse of the Pacific Ocean, establishing connections with North America and various Asian economies. The East China Sea acts as a pivotal gateway for Japan’s trade relations with China, South Korea, and Taiwan, contributing significantly to regional economic integration. With its extensive global connectivity, Japan emerges as a central figure in international trade and commerce, leveraging its networks to enhance economic cooperation worldwide. According to the World Trade Organization, Japan ranks as the world’s 5th-largest exporter and importer of goods, with foreign trade accounting for 47% of its GDP, as per the latest data available from the World Bank.

Investment Horizons

Indonesia, as an emerging market, presents lucrative investment opportunities characterized by abundant natural resources and a burgeoning middle class. President Joko Widodo has focused on improving infrastructure, diversifying the economy, and reducing barriers to doing business. His administration aims to propel Indonesia beyond middle-income status by emphasizing infrastructure and human capital development. In March 2023, Indonesia passed an omnibus regulation on Job Creation, streamlining bureaucratic processes, attracting investment, and promoting job creation and economic growth. Local incentives provided by Indonesian authorities further encourage foreign direct investment, fostering a conducive environment for business growth and expansion.

Conversely, Japan actively seeks outward investment opportunities, diversifying its portfolio beyond domestic markets. Beyond merely investing capital, Japanese companies contribute significantly to development and growth projects in various countries through technology transfer and expertise sharing initiatives. Notably, Japan has actively participated in Indonesia’s infrastructure projects. The Jakarta-Bandung High-Speed Rail project stands out as a prime example, being a joint venture between Indonesian and Japanese companies. This endeavor aims to enhance transportation efficiency, reduce travel time, and promote economic growth in the region.

Japan’s exports extend beyond physical goods; It excels in cutting-edge data transfer technology, as demonstrated by the National Institute of Information and Communications Technology’s groundbreaking achievement of transmitting data at 1 petabit per second in 2020. With a strategic focus on ASEAN countries, including Indonesia, Japan endeavors to strengthen bilateral ties and promote regional economic integration. Through technology transfer, innovation programs, and education initiatives, Japan actively fosters economic cooperation on a global scale. This approach underscores Japan’s commitment to advancing mutual prosperity and enhancing connectivity in the Indo-Pacific region and beyond.

Navigating Political Dynamics and Future Prospects

Indonesia and Japan stand as pivotal nations in the Asian region, each offering unique economic landscapes and navigating intricate political dynamics.

Political Dynamics

Japan

Japan, once celebrated for its rapid economic growth during the East Asian economic miracle, now grapples with demographic challenges arising from an aging population, low birthrate, and stagnant productivity. Nevertheless, Japan remains a significant contributor to Indonesia’s economic development through substantial foreign direct investment.

 

Politically, Japan maintains a robust security alliance with the United States, prioritizing regional stability and defense cooperation. Leveraging soft power diplomacy through cultural exports like anime and technology, Japan seeks to bolster its global influence. Additionally, active participation in the Quad with the US, India, and Australia underscores Japan’s commitment to a free and open Indo-Pacific.”

Indonesia

Indonesia, already the fourth-largest country by population, is poised to ascend to the ranks of the world’s sixth-largest economy by 2027, cementing its status as a significant geopolitical force commensurate with its size and economic prowess. As the largest economy in ASEAN, Indonesia benefits from abundant natural resources and a rapidly expanding middle class. Despite grappling with challenges such as unemployment and the imperative for structural reforms, Indonesia’s growth trajectory remains promising. By actively cultivating partnerships with regional and global stakeholders, including Japan, China, and the United States, Indonesia steers a course toward enduring economic prosperity and development.

Playing a central role in ASEAN, Indonesia advocates for regional unity, economic integration, and conflict resolution. Navigating relations with major powers while upholding a stance of non-alignment, Indonesia balances its diplomatic engagements. Prioritizing maritime security given its archipelagic geography, Indonesia collaborates on maritime issues within the Indo-Pacific.

Shared Interests

Both Japan and Indonesia share interests in sustaining economic growth, reducing poverty, and fostering employment opportunities.

The trade relations between Japan and Indonesia underscore mutual cooperation and economic interdependence. Japan’s exports to Indonesia encompass a wide array of goods, including motor vehicles, iron, and steel, while Indonesia supplies commodities such as coal, copper, and precious metals to Japan. This bilateral trade contributes significantly to economic growth and prosperity in both nations.

Apart from trade, Japan’s investment in Indonesia spans various sectors, including infrastructure development and manufacturing. Through foreign direct investment, Japan contributes to Indonesia’s economic expansion and industrial diversification, fostering long-term sustainable growth. Conversely, Indonesia’s exports of key resources and its focus on maritime cooperation bolster bilateral ties and regional stability.

Future Projections

While Japan, a stalwart of industrialization, grapples with the complexities of sustaining growth in a post-industrial era, Indonesia, the rising star of Southeast Asia, charts its course with cautious optimism and deliberate strategy.

Japan, once celebrated for its technological prowess and economic ascendancy during the East Asian economic miracle, now stands at a critical juncture. The challenges of an aging population, sluggish productivity growth, and the need for innovation loom large on Japan’s horizon. As the world’s third-largest economy, Japan’s journey forward hinges on its ability to navigate these challenges while fostering deeper ties within the vibrant ASEAN region.

Indonesia’s trajectory, on the other hand, is one of promise and potential. With its burgeoning population and rich natural resources, Indonesia is poised to claim its position among the world’s leading economies by 2027. Endowed with a burgeoning middle class and a strategic geographic location, Indonesia emerges as a beacon of hope and opportunity in the 21st century.

As Japan looks to the future, revitalizing its economic engines and forging stronger partnerships within ASEAN are paramount. Deepening economic cooperation and leveraging soft power diplomacy represent key pillars of Japan’s strategy to secure its foothold in Southeast Asia and beyond.

Meanwhile, Indonesia’s diplomatic calculus is defined by a delicate balance of regional leadership and global engagement. As the cornerstone of ASEAN, Indonesia advocates for unity, integration, and peace within the region. Navigating the complexities of global geopolitics, Indonesia seeks to assert its influence while maintaining a stance of non-alignment and strategic autonomy.

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Geo-Politics

Is the Philippines becoming next Asian Superpower?

Is the Philippines becoming next Asian Superpower

In recent years, the Philippines has emerged as one of the fastest-growing economies in the world, impressively rivaling the dizzying growth rates of fellow Asian countries such as China.

Being a country mostly known for its chaotic political scene and hyper-critical media landscape, the Philippines is now in global news for all good reasons. For instance, the country overtook Malaysia and Vietnam to become Southeast Asia’s fastest-growing economy.

Here arises one very important question. While the whole world is busy with chaos and conflict, is the Philippines quietly focusing on becoming an economic superpower?

Is the Philippines on Its Way to Become an Economic Superpower?

Now, most of you might wonder – Isn’t the Philippines a developing nation that was far from becoming an economic superpower a few years ago?

Remember! We’re talking about potential here. And what makes us so certain is the history of the country itself.

In the past, the Philippines was one of the richest nations in Asia, only second to Japan. So, it’s more than a florid fantasy that the country might want to reclaim its position.

The period from 1965 to 1973 was the golden time for the Philippines GDP. Diosdado Macapagal, then President, liberalized the economy by removing import controls and devaluing the currency. The same policy has been continued by President Marcos, allowing money to flood in and positioning the country on the journey of economic hikes.

In the 1920s, the average wage in the Philippines was higher than a Japanese person’s wage. During the 1930s, it was pretty much the same. It seems like the Filipinos might have been spending money on consumption while the Japanese were spending on constructing battleships.

Even if you view the picture from the point of total income per capita, the gap was not very large. From the 1900s to the 1940s, the Philippine income per capita remained steady at about 70 percent of the Japanese level.

The Philippines has had a higher income per capita compared to most East and Southeast Asian countries, just behind Malaysia, Hong Kong, and Singapore.

When the Things Started Going South

Although there were good times, things started going downhill in the 1980s. The ex-President Carlos Garcia has promoted industrial growth through his Filipino First Policy. The policy spurred growth in the local industry by promoting Philippine-made electronics and equipment. It was a strategic move on his part to compensate for the expiration of the Laurel Langley Agreement.

The agreement allowed the countries to make their countries competitive and ready for world trade within 17 years. It would allow the country to export its stuff to other countries without U.S. approval.

Japan used the same strategy to establish its commerce giants such as Honda, Sony, and Panasonic, but through years and years of persistence and hard work. South Korea produced Samsung and L.G. Likewise, Taiwan had TMC and Acer. China also started its industrial growth with a similar strategy, and it took 30 years for it to become an industrial country. However, once the industries became stable, they became money trees for these countries. And these countries cashed on them.

Now you see, the problem with this policy was that it took too long to generate wealth. Besides, it requires political stability and consistent policies. But unfortunately, the Philippine elite were impatient and could not wait that long to become wealthy.

Why so?

If you look at their history, everything will make sense to you. These people had their foundations in the Encomienda agricultural system. It was a Spanish system. The system was governed by the experts of cash crops. Investments in such crops start paying you off within a few months. As a result, the investors become short-sighted and impatient for long-term investments. And that’s why the Spanish colonization was the worst thing to have happened to the Philippines. The British, on the other hand, were not agriculturists. So, they did not rely on cash crops. They invested in technology and equipment. Besides, countries like Japan, Singapore, Taiwan, and South Korea did not have land for agriculture. So, they had no other choice but to industrialize. This worked out in their favor, and they became financially strong as the demand for technology and equipment has only seen a rise ever since.

Lacking the far-sightedness, Macapagal sabotages Garcia’s policies. His devaluation policy began in 1962, making borrowing easy. It was a common tactic among kings from medieval Europe to get rich. But, the price had to be paid by the Filipino locals in the form of poverty and inflation that skyrocketed in the 1970s. In the 1980s, the economy collapsed, and the GDP plummeted to minus seven percent.

The Road to Change

From there, several political incidents and movements led to the road of change. The focus was shifted to improving the economy and the country’s global reputation, which had been subject to strain due to allegations of corruption, human rights abuses, and the manipulation of democratic processes.

The Filipino government started spending more on improving the infrastructure. Its primary beneficiaries were the tourism industry. The international image was improved by hosting several international events. The policy was strictly adhered to during the time when the whole world was experiencing the international debt crisis.

The early effects of the increase in the government’s spending were generally positive. The investors invested aggressively. As a result, the GDP began to see an improvement. The government also focused on an expert-led industrialization that attracted foreign investments.

But later, the country’s economy stagnated. In those times, the people had no choice but to move to other countries for their bread and butter. The dollars earned by them also helped the country’s economy significantly.

Since then, the country has made considerable policy changes and has continued to multiply militarily and economically. Not to forget that the Philippines experiences multiple earthquakes and typhoons, yet the country has continued to grow.

What’s the future like?

According to experts, the country can quickly restore its position as one of the wealthiest countries in Asia if it continues to grow at this pace. The economy of this country is a newly industrialized emerging market in the Indo-Pacific region. In 2023, it stood at 436 billion dollars, and by 2035, it is even expected to be a trillion-dollar economy.

From relying solely on agriculture to investing in manufacturing, the country has come a long way. With an average growth rate of six percent since 2010, the Philippines is one of the fastest-growing countries in the world.

Being a key player in the global export game, it exports a variety of products.

First up, we’ve got electronics and semiconductors. The Philippines is a powerhouse when it comes to producing integrated circuits, semiconductors, and electronic components that you probably use every day!

Next on the list is machinery and transport equipment. Think cars, aircraft, and ships – yep, the Philippines is in on that action too!

Now, let’s talk coconuts! The Philippines is famous for its coconut products like coconut oil, copra, and desiccated coconut. Who doesn’t love a bit of tropical goodness?

And speaking of tropical, we can’t forget about fruits and veggies! From bananas and pineapples to mangoes and papayas, the Philippines is shipping out all the tasty tropical treats.

But wait, there’s more! The Philippines also exports apparel and garments, wood products, minerals and metals like nickel and copper, and a whole array of delicious food and beverages.

Trade Partners

First up, we’ve got the United States. Yep, the Philippines and the U.S. are like two peas in a pod when it comes to trade. They’ve got a strong partnership, exchanging goods like electronics, machinery, and agricultural products.

Next on the list is Japan. This Asian powerhouse is a significant trading partner for the Philippines, particularly in the electronics and automotive industries. Talk about a match made in trade heaven!

Now, let’s talk about China. With its booming economy, China is a significant importer of Philippine goods like fruits, minerals, and seafood. It’s a win-win situation for both countries!

But wait, there’s more! The Philippines also has robust trade relationships with countries like Singapore, Hong Kong, Germany, and South Korea. These partnerships bring in a variety of products, from textiles to technology.

And let’s not forget about our neighbors in ASEAN – the Association of Southeast Asian Nations. Countries like Malaysia, Thailand, and Indonesia are key trading partners, fostering economic growth and regional cooperation.

Now you can see why the Philippines has been named one of the Tiger Club Economies, including Indonesia, Malaysia, Vietnam, and Thailand. By 2055, it is expected to become one of the largest economies in the world, surpassing most of the Asian countries.

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