While the Republic of Indonesia is nearly eight decades old in its current form, the South-east Asian nation of more than 17,000 islands has a history that dates back much longer. The name Indonesia was first used in 1850 by the British anthropologist James Richardson Logan in reference to the extensive group of islands that was known at the time as the Indian or Malay Archipelago.
Archaeological evidence indicates that the ancestors of modern humans lived on the archipelago as far back as 1.9m years ago, while evidence of modern humans goes back 40,000 years. By 2000 BCE the islands were inhabited by a diverse group known as the Austronesians. These people exhibited impressive maritime skills and took full advantage of the archipelago’s location, engaging in extensive inter-island trading. This helped prompt the rapid development of agricultural techniques – particularly regarding the cultivation of rice – that facilitated pockets of growth. Islam arrived in the region in the 8th century CE, though meaningful conversions did not occur until the 14th century, beginning in Samudera Pasai in North Sumatra, and continuing into Makassar and Central Java during the 17th century. By that time, Islam had become the principal religion of the archipelago.
Geography & Climate
Indonesia is spread over more than 17,000 islands, some 6000 of which are inhabited. The archipelago sits between the Pacific Ocean and the Indian Ocean, while also bridging the Asian and Australian continents. This unique position has been influential in the country’s cultural, social and political make-up. Due to its proximity to the equator, Indonesia’s tropical climate is accompanied by average temperatures of between 28°C and 34°C along the coast, and 23°C in mountainous areas, with temperatures showing little variation from season to season. The dry season lasts from June to October, while the rainy season runs from December to March. The country’s relative humidity varies between 70% and 90%. Given its location over part of the Ring of Fire, a near-continuous series of volcanic arcs, belts and tectonic plate movements, Indonesia has been subject to natural disasters such as earthquakes, tsunamis and volcanic eruptions.
Population
As of 2023 Indonesia had a population of approximately 277.5m, comprising more than 300 different ethnic groups. It is the world’s third-largest democracy and the most populous Muslim-majority nation. The country’s population has more than doubled since 1971, when it was 118.3m, and it is expected to reach 292.1m by 2030 and 317.2m by 2050, according to the World Bank.
Indonesia was the 16th-largest economy in the world in 2023, with a GDP in current US dollars calculated at $1.4trn, according to the World Bank. The IMF projects Indonesia’s GDP to grow rapidly, reaching $2.2trn in 2029. With 11m inhabitants as of July 2024, Jakarta is the country’s largest city. Other major cities in Indonesia include Surabaya, Bandung, Medan and Semarang. Java is the most populous island in the world – in 2022 roughly 154.2m people were spread across approximately 128,300 sq km, or 7% of Indonesia’s total land mass.
Language
Indonesian is an Austronesian language stemming from the country’s various cultural and linguistic groupings, the majority of which are ethnically Malay. As part of Indonesia’s independence movement during the 1930s, the language – a standardised form of Malay – officially became Bahasa Indonesia and has since become the dominant form of communication in the realms of government, media, education and business. Local dialects and languages such as Balinese, Javanese and Sundanese are still used in certain areas of the archipelago. The popularity of the English language has also grown in recent years, with this likely stemming from the fact that members of the middle and upper classes frequently send their children to schools where English is the main language of instruction.
Religion
The Indonesian constitution guarantees freedom of religion, with the government currently recognising six faiths: Islam, Protestantism, Catholicism, Hinduism, Buddhism and Confucianism. In contrast to the rest of the country, on Bali more than 93% of the population practises a form of Hinduism specific to the island, while animism is still practised in some rural areas of the country.
Independence
Dutch colonialism was well established by the mid-18th century, and the country continued to consolidate its power over the following 200 years, with the Dutch East India Company expanding from Java and Batavia – the city now known as Jakarta. The first 30 years of the 20th century saw a rise in the popularity of independence and nationalism among the region’s local population, although it would be some time before the nation achieved independence. The Second World War brought with it the Japanese invasion and ensuing occupation in March 1942, signalling the end of Dutch colonial rule and acting as a catalyst for the Indonesian independence movement.
Following the end of the Japanese occupation and the surrender of Japanese forces in the Pacific, the country’s first president, Sukarno, declared Indonesian independence on August 17, 1945. Following this, it took over six weeks for the allied Dutch and British forces to arrive, by which time the Indonesian nationalist forces had managed to establish themselves in the territory. The conflict that followed was a final attempt by the Dutch to re-establish their authority. However, with the British withdrawing from the conflict towards the end of 1946 – and following four years of intermittent fighting and consistently fierce criticism of the Dutch by the UN – the Netherlands formally recognised the sovereignty of a federated Republic of the United States of Indonesia on December 27, 1949. On August 17, 1950, precisely five years after the initial proclamation of independence, Sukarno once again proclaimed a single unitary Republic of Indonesia.
Path to Democracy
While the first democratic elections were held in 1955, the following years were fraught with political, economic and social volatility. In 1957 Sukarno implemented a system of Guided Democracy, declaring himself president for life in September 1963. He presided over a complex political situation, in which the civilian nationalist leadership, the Islamic leadership, the Indonesian Communist Party (PKI) and the army all opposed each other. In September 1965 the situation reached a breaking point when the PKI attempted a coup against Sukarno’s government.
Following the impromptu formulation of the New Order coalition comprising students, Muslim communities and army factions, Sukarno’s government swiftly defeated the PKI coup over the following months. By this point the president’s health was failing, and he was replaced in March 1967 by Major General Suharto – an army officer who had been largely responsible for halting the coup. Suharto remained in office for the next seven consecutive five-year terms, during which time a highly centralised system of governance was put in place, including various transmigration policies and the forced resettlement of many Javanese people.
During this period the annexation of West Papua and Timor-Leste sparked widespread international condemnation. Meanwhile, the population started to express its frustration with widespread corruption and Suharto’s brand of authoritarianism. The 1997-98 Asian financial crisis prompted the value of the rupiah, the country’s currency, to plummet and inflation to soar. This led to students taking to the streets to voice their grievances in protests that were largely supported by the wider population. Eventually, under pressure to resign, Suharto left office on May 21, 1998. Suharto’s position was filled by his vice-president, Bacharuddin Jusuf Habibie, who was able to restore order by regaining the support of the IMF and utilising its funding in numerous economic stabilisation programmes. Habibie began to enact a period of considerable government change under the banner of Reformasi, or reform.
Political Landscape
In 1999 Indonesia held its first freely contested parliamentary elections since 1955. Abdurrahman Wahid, the leader of Nahdlatul Ulama, Indonesia’s largest Muslim organisation, swept to victory. He took over a country beset with inter-ethnic and inter-religious violence, with some 10,000 people thought to have been killed between 1999 and 2002. Partly to address the existing tensions across the country, the government pushed through a policy of decentralisation and democratisation. Despite the move, Wahid’s leadership style was unpopular, and there were questions concerning his competency and health. In July 2001 he handed power to his vice-president, Megawati Sukarnoputri.
Although Sukarnoputri was head of the Indonesian Democratic Party of Struggle (PDI-P) and Sukarno’s eldest daughter, her tenure as Indonesia’s first female president was fairly short-lived. In September 2004 she was defeated in an election by Susilo Bambang Yudhoyono, the Democratic Party candidate. The country’s first democratically elected president, Yudhoyono was re-elected to a second five-year term in 2009. Presidential elections in July 2014 marked the end of Yudhoyono’s tenure and the beginning of the leadership of PDI-P candidate Joko Widodo. Better known as President Jokowi, he had entered into politics as the mayor of his hometown of Surakarta on the island of Java, before subsequently becoming the governor of the Special Capital Region of Jakarta. In 2019 President Jokowi comfortably won re-election with 55.5% of the national vote, and his second term is set to conclude in October 2024. In February 2024 Prabowo Subianto, a former general and Suharto’s son-in-law, won the presidential election. He will assume power at the end of President Jokowi’s term.
Head of State
According to the 1945 constitution, the country’s president is the head of state, the head of government and the commander-in-chief of the Indonesian National Armed Forces. However, several important amendments were made to the constitution between 1999 and 2002, one of which was to limit presidents to a maximum of two consecutive five-year terms. Another was to change the selection process for the president. While heads of state had been elected previously by the People’s Consultative Assembly (MPR), the country’s Parliament, presidents are elected by popular vote under the new system. In 2004 Yudhoyono became the first head of state to be elected in this manner.
The president, as the head of government, has the power to appoint members of the Cabinet; as executive, they have the right to propose bills to the People’s Representative Council (DPR), the lower and more important house of Parliament. The president may also issue regulations in lieu of laws during emergencies, and they have the authority to sign treaties, appoint ambassadors, issue legal pardons and make appointments to the judiciary.
Legislative Powers
The MPR is a bicameral institution composed of the DPR and the Regional Representative Council (DPD), the upper house. The DPR is chaired by a speaker and four deputy speakers elected from among its members. The speaker comes from the party with the most seats in the house, as do the deputies. The current speaker is Puan Maharani of the PDI-P, the first female speaker of the DPR. The DPR has legislative, budgeting and oversight functions, with its chief goals including the drafting and passing of laws, approving government regulations and offering provisional oversight to the DPD. Alongside the president, the body is responsible for the annual budget and has the right to question the decisions of the executive branch.
For the 2019-24 session the ruling coalition, Kabinet Indonesia Maju, held 427 of 575 seats. Bills from the upper house must gain approval from the DPR; however, the DPD has no power to revise or reverse DPR decisions. The DPD consists of 136 seats, with the total number limited to no more than one-third of the DPR. This allows some flexibility in the number of provinces, which has grown since the decentralisation push in 1999 from 26 to 38. DPR and local elections are held simultaneously every five years. According to the constitution, DPD members must serve as individuals rather than party members, although they may have party connections. The DPD has the power to submit bills to the DPR on regional issues and has an oversight function regarding government activities in the regions.
Local Government
Indonesia’s administrative structure consists of 41 primary divisions. These comprise 38 provinces; the special regions of Aceh and Yogyakarta; and the capital district of Jakarta. Nine of Indonesia’s 38 provinces – Jakarta, Yogyakarta, Aceh and the six Papuan provinces where indigenous populations are granted local government privileges – have special autonomous status. The provinces are then divided into 416 regencies and 98 municipalities, which are further subdivided into districts and then into administrative villages.
Following a 2017 change to the electoral law, all parties must receive at least 4% of the national vote to qualify for Parliament, potentially limiting the range of local and ethnic political organisations. The regions and municipalities have control over local education, health and infrastructure, with budgets provided both centrally and through local revenue.
Law & Order
The highest court in Indonesia is the Supreme Court (SC), which has oversight of 68 high courts, 31 general courts, four military courts and four administrative courts. The SC is the final court of appeal. Its chief justice is currently Muhammad Syarifuddin, who was elected by the 48 justices in April 2020 following the retirement of his predecessor, Muhammad Hatta Ali.
On constitutional matters, the SC defers to the Constitutional Court (CC). The CC rules on motions to impeach the president, which if passed are then forwarded to the MPR. The CC also has the final say in election disputes, the dissolution of political parties and conflicts between government agencies. Another key legal body is the Corruption Eradication Commission (KPK), which has successfully investigated a number of local politicians and business leaders. However, there have been political tensions around the KPK, such as a series of student-led demonstrations in September 2019 when members of Parliament attempted to limit the KPK’s ability to perform its duties. The protests were the largest student movement since the 1998 demonstrations that brought down the Suharto regime.
2024 Elections
Indonesia held its presidential and legislative elections in February 2024, marking the conclusion of President Jokowi’s two fiveyear terms in office. According to official results Prabowo, the country’s defence minister, and his running mate, President Jokowi’s son-in-law Gibran
Rakabuming Raka, received 96m votes, winning 58.6% of the vote. Former Jakarta governor Anies Baswedan (41m votes, or 25%) and former Central Java governor Ganjar Pranowo (27m votes, or more than 16%) finished second and third, respectively.
A former general, Prabowo was endorsed by the outgoing President Jokowi, who had an approval rating of roughly 80%. Prabowo leveraged the outgoing president’s popularity to position himself as someone who would build upon the policies implemented by his predecessor and propel Indonesia into the ranks of the world’s leading economies. Prabowo’s administration will take office in October 2024.
Agenda Items
The new administration is likely to follow large portions of the agenda set by President Jokowi, with an emphasis on infrastructure development; the development of downstream industries to capitalise on the country’s natural resource wealth; and the construction of the new Rp466trn ($30.3bn) capital city, Nusantara, in East Kalimantan. The new city, which is spread out over 1000 square miles on the island of Borneo, is set to replace Jakarta, with civil servants expected to start moving to East Kalimantan in the third quarter of 2024. This continuity is likely to offer relative stability during Prabowo’s term.
Economic growth will be a major priority for the new administration, with aspirations to make Indonesia one of the world’s top-five economies by 2045, the 100th anniversary of the country’s independ-ence. President Jokowi set an annual growth target of 7% during his tenure, but this figure peaked at 5.3% in 2022 and averaged 4.2% between 2014 and 2023, with the IMF projecting growth to come in at 5% in 2024. However, in May 2024 Reuters reported that Prabowo said he was “very confident” that Indonesia could achieve a growth rate of 8% within the first two to three years of his administration. This goal could prove difficult though given the country’s gross domestic savings as a percentage of GDP, an indicator of the amount of local funds available to be spent on domestic projects. While the World Bank estimated this figure to be more than 38% in 2023, Bloomberg reported in February 2024 that Chatib Basri, Indonesia’s former finance minis-ter, believed that this statistic would need to reach 41-48% in order to achieve an annual growth rate of 6-7%. Prabowo also intends to continue efforts to develop downstream industries and achieve energy self-sufficiency for the country.
The new administration is expected to continue working towards Indonesia’s goal of becoming a net-zero economy by 2060. Prabowo’s administration aims to transform Indonesia into a global renewable energy and bioenergy power, as well as align climate policies with growth targets in a more business-focused approach. In addition, the new president intends to foster closer investment ties with China while maintaining a strong relationship with the US. China has emerged as a significant investor in Indonesia, nearly tripling its foreign direct invest-ment (FDI) from 2021 to 2022, reaching $8.2bn and becoming the second-largest foreign investor in Indonesia after Singapore. In 2023 FDI from China dropped to $7.3bn, but Indonesia remained the greatest recipient of Chinese funding in South-east Asia that year. In September 2023 President Jokowi announced that China had come to an agreement with the country to invest $21.7bn across a number of different sectors, including transport.
In terms of greater regional involvement, Indonesia is the largest of the 10 ASEAN member states which have a combined population of more than 680m and a combined GDP of $3.2trn – and an increasingly influential one within the organisation. In recent years the country has continued to strengthen its diplomatic relations with neigh-bouring countries, while also boosting long-term cooperation with Japan, China and South Korea. Additionally, Indonesia has also played an integral role in assisting with the resolution of territorial disputes between Thailand and Cambodia.
Energy Resources
Indonesia’s primary energy consumption grew at an annual rate of 4.5% per year between 2013 and 2023, surpassing 10.1 exajoules (2.8m GWh) by the end of the period. The energy sector – particularly oil, gas and coal – has seen major changes in recent years. The oil and gas indus-try has been on a gradual decline, with its share of GDP falling from 10% in 2000 to 2.5% in 2021. This downturn has transformed Indonesia from an oil exporter to a net importer, with oil imports comprising 23% of the energy supply in 2021.
That same year coal provided 30.3% of the country’s energy supply and accounted for 61.5% of its electricity generation, according to the International Energy Agency. Coal exports experienced significant growth from 2000 to 2021 – up by more than 600% during that period, making Indonesia the largest such exporter in the Asia-Pacific region.The decline in oil and gas production can be attributed to decreased investment in exploration and capacity-building, primarily due to stringent domestic content requirements and limitations on project ownership that discourage foreign compa-nies. This lack of foreign investment not only limits the funds available for renewable energy projects, but also makes domestic, government-led investment dependent on profits from Indonesia’s large mining and resources sector. Consequently, this could intensify cycles of boom and bust. Despite these challenges, the country’s energy export mar-ket remains robust, with the majority of exports destined for countries in Asia with large populations. However, considering the current landscape, the Indonesian government needs to address the declining oil and gas industry, and the environmental implications of the growing coal sector.
Palm Oil
Indonesia is the largest producer of palm oil in the world. The US Department of Agriculture estimated that the country accounted for 59% of global production in the crop’s 2023 marketing year, which is calculated from October to September. According to the Indonesia Palm Oil Association (IPOA), production levels were projected to increase in 2023 compared to the previous year, with crude palm oil (CPO) reaching 50m tonnes for a growth rate of 7.2%. Palm kernel oil (PKO) production was also estimated to have risen to nearly 4.8m tonnes in 2023, representing a 5.7% increase over 2022. These growths can be attributed to factors such as high palm oil prices, which encouraged growers to boost cultivation efforts; and expanded production areas. The IPOA also estimated an uptick in local consumption, growing by 8.9% to 23.1m tonnes in 2023. This was mainly due to the implementation of a biodiesel programme to meet domestic fuel demand, which boosted palm oil consumption by 17.7%.
Despite these trends, CPO and PKO exports were projected to have fallen by 2.4% in 2023, down to approximately 32.2m tonnes. In contrast, biodiesel and oleochemical exports were estimated to have risen by 29,000 tonnes and 395,000 tonnes, respectively, according to the IPOA. The EU export market fell by 11.6%, but increased exports to Africa, China, India and the US helped offset this. Average prices for palm oil in the Ciff Rotterdam market were down 28.7% in 2023, leading to a drop in export value from $39.1bn in 2022 to $30.3bn in 2023.
Renewable Energy
Indonesia’s renewable energy sector is guided by two frameworks: the net-zero roadmap, which aims for carbon neutrality by 2060; and the Just Energy Transition Partnership. The latter’s implementation strategy, the Comprehensive Investment and Policy Plan (CIPP), launched in November 2023 after being signed during the G20 summit in Bali in November 2022. Funded by $20bn in funding from international donors, the CIPP seeks to limit Indonesia’s on-grid emissions to 250m tonnes of CO2 equivalent per year, increase the share of renewables to 44% of power generation by 2030 and reach net zero by 2050. However, current funding falls short of the estimated $100bn needed between 2023 and 2030, and the expected $580bn required between 2023 and 2050.
The sector’s initiatives include the development of carbon capture technology, the retiring of coal-fired power plants, the building of nuclear power plants and the introduction of hydrogen-fuelled transport. Nonetheless, these efforts face challenges, as non-market tariffs and large fossil fuel subsidies limit the competitiveness of renewable energy sources. Additionally, stringent regulations on local content have hindered growth within the domestic solar power industry.
Foreign Investment
By inviting targeted investment and adapting the existing regulatory framework, the government has taken significant steps to facilitate foreign funding, as well as to develop value-added industries. One such measure was the Indonesia Investment Coordinating Board’s one-stop service, a centralised online portal launched in January 2015 through which investors can submit and track their investment in different sectors. Another initiative is the omnibus bills signed into law in November 2020, which aimed to improve the business climate, bring in investment and reduce the number of sectors closed to foreign investment.
Human Capital
Indonesia’s young and growing population is one of its strongest assets, as is its middle class, which has continued to expand in recent years. Economic growth averaged 5.6% per year between 1970 and 2019, leading to a signifi-cant decrease in the poverty rate and enabling the country to gain middle-income status, according to the World Bank. As of 2020 around 20% of the population – or 52m individuals – were financially secure, while 115m Indonesians were classified as being in the middle class. This has helped fuel overall economic growth, with the middle class accounting for around half of the country’s total consumption.
Outlook
The new government under President-elect Prabowo is expected to stick to the pol-icy agenda established by his predecessor, with a focus on infrastructure development, economic transformation and the construction of the new cap-ital. The incoming administration’s potential annual growth target of 8%, though challenging, reflects the drive to elevate Indonesia into the world’s top-five economies by 2045. Efforts to develop down-stream industries and transform Indonesia into a renewable energy and bioenergy powerhouse underscore the country’s focus on energy self-suffi-ciency and climate goals. However, the government needs to address the declining oil and gas industry, the environmental implications of the growing coal sector, and the need for significant investment in transmission infrastructure.
The country’s palm oil industry has demonstrated resilience despite fluctuations, with increased production levels and local consumption, and potential for growth. Meanwhile, the government’s efforts to facilitate foreign capital, including the one-stop service and the omnibus bills, are significant steps towards boosting long-term growth and attracting investment. Indonesia’s young and growing population, as well as its expanding middle class, are key assets in boosting economic expansion. However, the incoming government must ensure that regulatory frameworks and policies are adapted to utilise the country’s demographic advantages. Overall, the outlook for Indonesia’s socio-economic development is generally positive, provided that the key chal-lenges facing the country are effectively addressed.
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