Globalization’s Impact on Indonesia
    Category: Column By : Abhineet Kaul Read : 6361 Date : Tuesday, March 01, 2017 - 11:45:39

    We are living at the peak of global trade, with the value expected to be over $44 trillion by end-2016, the largest dollar amount of transactions in history. Global trade value in 2016 was 80 times larger than that of 50 years ago, and almost 2.5 times the value of 2000. However, weak global demand since the 2008 global financial crisis and the rise in protectionism worldwide has meant a slowing of global trade. The trade value is expected to grow just 2% in 2016 and no more than 3% in 2017, as per a WTO analysis. As a contribution to global GDP, the trade has declined from approximately 61% in 2008 to about 58% in 2016.

    Indonesia, which represents 0.8% of global trade value, has experienced much faster growth than the rest of the world—240 times bigger trade value in 2016 as compared to 1967 and three times from 2000. Annual GDP growth has averaged 5.6% in the last decade, coupled with rising prosperity across Indonesia. Preliminary analysis from a recent survey in Jan-Feb 2017 shows urban Indonesians, agreed with the following:

    • 56% felt globalization has created more jobs for Indonesians
    • 72% felt globalization means lower prices for daily goods and services
    • 68% felt no significant increase in share of foreigners in Indonesia due to globalization
    • 98% see Indonesia doing well over the next decade

    Macroeconomic data supports these perceptions. Indonesian unemployment fell from a peak of 11% in 2005 to currently under 6%. Annual inflation, which was 13% in 2006, is also now close to 6%. Since 2006, Indonesia has opened up more to global trade, helped by eight Free Trade Agreements under force since then, and more underway. This opening up of the economy could have had a contribution towards the aspects mentioned above.

    However, gains from rapid economic growth do not seem to be distributed evenly. The Gini coefficient has increased from 0.31 in 2001 to 0.41 in 2014 (a higher value means more inequality). Our survey also highlights that:

    • 79% felt globalization does not lead to better pay and benefits
    • 91% felt that the flow of foreigners should be controlled
    • 71% felt that Indonesia’s growth and Indonesians are more important than global free trade
    • 76% prefer local products over foreign products

    With slowing economic and trade growth, those left behind in globalization risk being left behind even further. All levels of government and NGO stakeholders should ensure that we do not see widespread anger towards globalization as is playing out in the West. Indonesia has played the balance between globalization and promoting domestic interests well so far; but the bigger question is—can it continue its balancing act?