The economy of Indonesia: an exporter of raw materials that wants to process them

How the plantations shaped what Indonesia sells

The export economy was designed in the 19th century to ship crops to Europe. Under the Cultivation System from 1830, Javanese villages grew indigo, sugar, coffee, tea, tobacco and pepper for the Dutch government, and after the agrarian law of 1870 private estates on Sumatra's east coast added rubber, copra, tin and oil. Over the following 60 years exports rose from 107 million guilders to 1.16 billion. Britannica's summary of the pattern is that the colonial government stood between the producer and the market and the surplus went to the Netherlands; the history article covers how it was built.

The legacy is visible in what the country still sells. Britannica lists crude petroleum and natural gas, rubber, coffee, cocoa and palm oil, plus sugar, tea, tobacco, copra and cloves, and notes that nearly all commodity production comes from large estates. The estates are still concentrated where the Dutch put them: around Medan in north-eastern Sumatra, tobacco, rubber, palm oil, tea, cloves and coffee grow on plantations, none of them crops native to the region. Rice remains the base of small farming, and Britannica dates the country's self-sufficiency in rice to the mid-1980s, though imports have recurred since the late 1990s.

What the oil boom and the New Order built

Independence began with ruin. Wikipedia's economy article records that the occupation and the revolution cut rubber exports to 12% and oil exports to 5% of their pre-war levels, and that by the mid-1960s, under Sukarno's "Guided Economy", inflation had reached 1,000% a year. The New Order that followed brought inflation down, stabilised the rupiah, rescheduled the foreign debt and passed a foreign investment law in 1967. Five-year plans from 1969 to 1998 put the state into irrigation, transport and communications, and the state oil company Pertamina has held refining since 1968.

Oil paid for it. Indonesia was for many years the only Southeast Asian member of OPEC, and the price rises of the 1970s carried growth at an average of more than 7% a year from 1968 to 1981. When the oil price fell in the 1980s, the government changed course: a managed devaluation of the rupiah, banking reforms in 1983 and 1988 and the opening of manufacturing to foreign investment. Growth averaged 4.5% from 1981 to 1988 and over 7% again from 1989 to 1997. Britannica dates the point at which manufacturing overtook agriculture in its share of GDP to the early 1990s.

Growth figures to 2020 are from Wikipedia's economy article; the 2025 figure is from BPS-Statistics Indonesia.

What the Asian financial crisis broke

The boom rested on banks lending to connected borrowers and on conglomerates close to the government, and in 1997 it failed at once. The rupiah, at about Rp2,600 to the US dollar at the start of August 1997, fell to about Rp11,000 by January 1998. Real GDP fell 13.1% in 1998 and inflation reached 72% that year. Indonesia agreed an IMF programme in October 1997 that targeted, among other things, the national car programme and the clove monopoly, both involving members of the president's family. The crisis brought down the government in May 1998.

The repair took six years. In 1998 the government set up the Indonesian Bank Restructuring Agency, which closed and merged failing banks; the surviving banks turned to lending to households and small businesses. The IMF programme was allowed to lapse in 2003, and by 2004 the banking sector had stabilised and the agency was dissolved on schedule, according to Britannica. Growth returned in 1999, reached 6.3% in 2007 and 6% in 2012, and turned negative only in 2020, when the pandemic cut GDP by 2.07%.

Why the government banned nickel ore exports

The clearest statement of what the state wants from its resources is a ban. The mining law of 2009 began a series of regulations requiring minerals to be processed in Indonesia before export. The International Energy Agency's summary records that nickel ore exports were first outlawed in January 2014, that ore below 1.7% nickel could still be shipped between January 2017 and December 2019, and that every export of nickel ore has been banned since January 2020. The stated aim was to keep the value added in processing inside the country and to create jobs. The European Union has challenged the regulations as a breach of the General Agreement on Tariffs and Trade, the IEA notes.

The ban did what it was meant to do to investment. An analysis published by East Asia Forum in October 2023 counted Chinese downstream investments and commitments of some US$30 billion in the year after the ban, and 43 nickel smelters operating in July 2023, with 28 under construction and 24 being planned. The same analysis records the costs: forest cleared for mines, toxic waste, smelters powered by coal, and about 90% of the processing capacity in the hands of Chinese companies. Wikipedia's main article on the country says policies since 2020 have pushed more processing of commodities at home, with nickel the leading case.

The idea predates nickel. The constitution's Article 33 places "the land, the waters and the natural resources within" under the powers of the state, and the state already owns all petroleum and mineral rights: foreign oil companies work as contractors under production-sharing agreements, putting up the capital while ownership stays with the government. A 2018 order required oil companies operating in the country to sell their crude to Pertamina.

How coal and palm oil earn the foreign currency

Oil itself has faded as an export. Crude and condensate output averaged 1.5 million barrels a day in 1999 and 1.07 million in 2005 as fields aged; Indonesia's OPEC membership was suspended in 2009, and the country remains a net oil importer. Coal took its place. Output was 74 million tonnes in 1999, 353 million in 2011 and 458 million in 2014, when 382 million tonnes were exported. A domestic market obligation reserves part of the output for home use, and Wikipedia's main article records that in 2023 Indonesia produced nearly twice as much primary energy as it consumed, with coal dominant in both production and power generation.

Palm oil is the agricultural counterpart. In 2016 Indonesia produced over 34.6 million tonnes and exported 25.1 million, and Wikipedia's economy article puts the industry at 4.5% of GDP and 3 million jobs. Plantations covered 6 million hectares in 2007. In 2025 BPS named crude palm oil and base metals as the export-oriented industries that lifted manufacturing growth, and Antara's report of the release lists animal and vegetable fats and oils, iron and steel, electrical machinery and vehicles among the exports that rose in value.

The mines are spread across the outer islands: tin on Bangka, Belitung and Singkep, bauxite on the Riau Islands and in western Kalimantan, nickel on Sulawesi, Halmahera and in Papua, copper and most of the gold in the Jayawijaya Mountains of Papua. Coal comes mainly from Sumatra and Kalimantan.

What Indonesians spend and where output is made

The domestic market is larger than the export trade. In 2025, according to BPS-Statistics Indonesia's release of 5 February 2026, GDP at current prices was Rp23,821.1 trillion and GDP per head Rp83.7 million, or US$5,083.4. Growth was 5.11%, against 5.03% in 2024. Household consumption made up 53.88% of GDP by expenditure and gross fixed capital formation 28.77%, and those two contributed 2.62 and 1.58 percentage points of the growth. Exports of goods and services grew 7.03%.

Geography sets the limits. The provinces of Java produced 56.93% of the national economy in 2025 and grew 5.30%. Britannica places the centre of private industry in western Java, textile weaving around Bandung and batik production in central Java. Away from Java, Wikipedia's main article notes weaker infrastructure and economies more dependent on farming, and high transport costs between islands that make it harder to connect producers to markets. Sea freight carries the raw materials; the main dry-cargo ports are Tanjung Priok for Jakarta, Tanjungperak for Surabaya and Belawan for Medan, and Palembang is the main oil port.

On land the networks are uneven. Rail runs mainly on Java and Madura with less service on Sumatra, and the Jakarta to Bandung high-speed line began commercial operation in 2023, while roads carry most traffic and private cars and motorcycles most people. Air links carry passengers between islands. Satellite links from the late 1970s, the Palapa domestic system among them, extended telephones and broadcasting to remote islands, and the Palapa Ring fibre network now forms the national internet backbone, with gaps in the most remote regions. Services as a whole generate more than a third of GDP by Britannica's account. Tourism is a major service industry: Wikipedia's main article puts its foreign-exchange earnings at about US$14 billion in 2023, from 11.6 million international arrivals, most of them through Bali and the other main gateways.

Who works and who remains poor

The World Bank's country overview, as read in October 2026, gives a labour force of about 143 million, with participation of roughly 55% for women and 83% for men, and says most workers are in the informal sector, agriculture and services above all. Britannica adds that industrialisation has not produced strong organised labour, partly because of the labour surplus and partly because political repression under Suharto discouraged workers' associations.

Poverty fell by more than half between 1999 and 2019, to below 10% just before the pandemic, according to the World Bank. In March 2025 the official rate was 8.5%, about 23.9 million people below the national poverty line, 1.4 million fewer than in March 2024. Wikipedia's main article gives about 8% for March 2026.

The government's targets are set further out. The World Bank records a 20-year development plan for 2025 to 2045 carried out through five-year plans, the aim of high-income status by 2045 and a growth target of 8% a year by 2029; its own projection, published after growth of 5% in the first half of 2025, was steady growth of 4.8% a year through 2027.

How Bank Indonesia manages the rupiah

Bank Indonesia issues the rupiah, and its own statement of purpose gives it one objective: stability of the rupiah's value, both against goods and services, which is inflation, and against other currencies, which is the exchange rate. The supervision of individual banks belongs to the Financial Services Authority (OJK), with which the central bank coordinates on financial stability. An inflation target has been in place since 2000.

The currency's record since 1997 explains the emphasis. After the crisis the rupiah settled around Rp8,000 to Rp10,000 to the dollar, weakened past Rp11,000 in 2013, touched about Rp16,500 during the pandemic in 2020, and stood near Rp16,200 in April 2024. In 2025 it fell to a five-year low early in the year, and Bank Indonesia held its policy rate at 5.75% in March before cutting to 5.50% in May once the currency had recovered more than 3% from its April low. Jakarta and Surabaya have stock exchanges, and Britannica records that the deregulation of the early 1980s set off fast growth in the Jakarta market, though direct share ownership stayed limited to a small group of investors.