Indonesia’s Ambition to Become an Industrial Giant
The populous and resource-rich Southeast Asian country has many of the fundamentals for industrialization, but will face challenges in building state capacity and dynamic economic institutions.
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With a population over 280 million people, the fourth-most populous country in the world after India, China, and the United States is the Southeast Asian nation of Indonesia.1 With an estimated total fertility rate of 2.14 children per woman, Indonesia is also the last large East or Southeast Asian country with a fertility rate above replacement, and so will likely retain a large working-age population for the foreseeable future.2 If Indonesia were to reach the nominal GDP per capita of its smaller and wealthier but culturally similar neighbor Malaysia, it would have a GDP of $3.2 trillion, which would today make it the seventh-largest economy in the world, ahead of France, Russia, or South Korea.3 Indonesia’s annual GDP growth has consistently stayed above 5% since 2004.4 The country is one of a few large developing countries that may plausibly see major economic growth in the coming years. It also occupies a key strategic position in Asia: spread across an archipelago of over 17,000 islands stretching some 5000 kilometers from the Indian Ocean to the Pacific, Indonesia effectively bridges East Asia to the Indian Ocean and thus to Europe, Africa, and the Middle East, including through the narrow Malacca Strait through which most Chinese trade—including energy imports—passes.