The Platform


In 2020, Indonesia, along with 14 other Asia-Pacific countries, signed the Regional Comprehensive Economic Partnership (RCEP). With 2.2 billion people and 30% of the global GDP, the free trade agreement holds much promise. Lili Yan Ing, an Indonesian economist, suggests that RCEP will boost the region’s economic growth even without India as a member.

The goal of RCEP is to cut trade tariffs over the next 20 years. It is projected that RCEP will benefit Indonesia in terms of exports by 7.2%. Even within the next five years, it could increase exports by 11% and foreign investment by 22%.

In 2020, Indonesia, like much of the world, was hit by the pandemic, which caused the economy to contract. According to government statistics, in 2020, economic growth was -2.07%. However, in the third quarter of 2022, economic growth reached 5.72%. It is a positive trend for the economy.

Apart from RCEP, Jakarta is pushing mass vaccinations to jumpstart growth. The government sees that people’s movements can increase with vaccinations because group immunity has been formed. This will boost consumer spending, which has ancillary effects.

In addition, Indonesia has enacted various policies to boost foreign investment. In the past, many foreign companies faced licensing, land acquisition, and regulatory issues, which prevented them from operating in Indonesia. In 2019, there were 190 instances that hindered foreign investment in the country. Therefore, to reduce this problem, the government passed legislation to boost job growth and attract foreign investment. The government remains steadfast and believes that this approach will significantly impact Indonesians and the economy. The government raised its investment target in 2023 to $92 million, up from $79 million.

After ratifying RCEP, Indonesia reduced tariffs on certain goods. Frozen salmon, for example, had its import fees cut from 10% to 0%. Through RCEP, Indonesia can boost palm oil, mineral fuels, and steel exports. Indonesia predicts that trade with both Australia and China will see a net benefit. On a cumulative basis, for most of 2022, Indonesian exports grew by $244 billion, a growth of 30% compared to 2021.

And because of RCEP, Indonesia can integrate far faster into the global supply chain. Indonesia’s exports are predicted to grow by 7.2%. To achieve this goal of building a strong export economy, Indonesia is heavily investing in its steel, nickel, copper, and aluminum industries and strengthening the battery-based electric vehicle industry ecosystem.

Indonesia can also take advantage of the digital economy. This is in line with Indonesia’s stated goal at the G20 in November 2022. The opportunity is significant, considering Indonesia can capitalize on e-commerce and fintech. A report by the government predicts that the country’s digital economy could grow to $146 billion by 2025. Indonesia can take advantage of the post-pandemic economic recovery by building upon its creative class and attracting foreign talent to move there.

If Indonesia continues to embrace free trade and develop its digital economy, the country could see a bright economic future.

Gufron Gozali, an alumnus of the Islamic University of Indonesia, contributed to this article.

M Habib Pashya is a Master's student at Universitas Gadjah Mada majoring in International Relations. His academic research primarily focuses on Indonesia-China relations, Indonesia's foreign policy, and the U.S.-China-Taiwan relations.