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‘Missing link’ in Indonesia’s economic development, says INDEF
Indonesia’s structural transformation from an agricultural to a services-based economy has seen industrial development come up short, according to a Jakarta-based think tank.
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INDEF senior economist Faisal Basri sits down to explain to reporters what he deems the best path to industrialization, during a seminar in Jakarta on Aug. 8, 2023. (The Jakarta Post/Deni Ghifari)
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ndonesia’s structural transformation from an agricultural to a services-based economy has seen industrial development come up short, according to the Institute for Development of Economics and Finance (INDEF).
The country should have gone through a more thorough phase of industrialization before reaching its current economic structure, but data suggest the manufacturing sector has begun to regress without having fully blossomed, the Jakarta-based think tank believes.
“Indonesia is not an agricultural country anymore, but it has yet to become an industrial country. So, there is a missing link in the transformation Indonesia experienced, from [an] agrarian [economy] straight to services, with all the consequences, of course,” INDEF senior economist Faisal Basri said during a seminar on Tuesday.
As a result, Indonesia was experiencing deindustrialization, based on several indicators, the first being the service sector’s contribution to GDP, which had been creeping up and reached a high of 57 percent in 2022, Faisal explained, adding that the sector accounted for 55.8 percent of employment, against the industry sector’s 44.2 percent.
He went on to say that the service sector also dominated in terms of stock market capitalization as it accounted for some 60 percent of the value of companies listed on the Indonesia Stock Exchange (IDX).
Simultaneously, the goods-producing sector had been diminishing, as reflected in its share of loans disbursed by conventional banks, which did not even reach 30 percent of the total, while some 70 percent went to service sector companies, Faisal noted.
In this year’s first half, the service sector also made up 60 percent of the state’s tax income, while the goods-producing sector accounted for just 38 percent.
