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Indonesia has handed over the reins of the G20, but it will still play an influential role. Here’s why

Indonesia's G20 presidency deemed succesful.
Indonesian President Joko Widodo (left) talks with International Monetary Fund (IMF) Managing Director Kristalina Georgieva (right) at the end of the 2022 G20 Summit in Bali last month. ANTARA FOTO/Media Center G20 Indonesia/Zabur Karuru/nym

Indonesia has handed the G20 presidency over to India, following a successful summit in Bali last month.

They will continue to play an influential role in the group, comprised of the heads of state of the 20 largest economies in the world, thanks to a burgeoning economy and equal development across the country.

But to stay relevant on the global stage, more needs to be done on climate.

Indonesia’s continuing significance in the global economy

Within the G20 countries, Indonesia is ranked 16th in economic size.

Despite the global pandemic, Indonesia has maintained relatively stable growth. This is due to strong domestic consumption growth and favourable trade and investment policies.

Indonesia’s consumer spending reached an all time high of Rp 1,550 trillion (US$100.42 billion) in the second quarter of 2022. Whereas annual foreign direct investment jumped 8% last year amid the bleak global outlook.

The Organisation of Economic Co-operation and Development (OECD) projects the country’s economy to grow at a rate of approximately 5% in 2022/2023. This is a remarkable figure given the average growth of emerging and developed economies are estimated to be at 3.7% and 1.75% respectively. This puts Indonesia in the top three fastest growing economies in the G20, after Saudi Arabia and India.

A report by McKinsey Global Institute predicted Indonesia would become the seventh-biggest economy in the world by 2030. With a population of 280 million, Indonesia is also currently the world’s fourth-most populous country.

Indonesia has had significant growth in its middle-class population. By 2030, this consumer group will reach 135 million, representing almost half the population. This makes Indonesia the fourth biggest consumer market in the world after China, India and the US.

All these will further increase Indonesia’s significance as one of the most attractive export markets in the world, thus strengthening its bargaining position.

Indonesia’s sustainable and inclusive growth

Indonesia has successfully managed its government debt to sustain long-term economic development. As a result, the country’s debt to gross domestic product (GDP) ratio has remained stable at 40% over the past three years.

This is lower than the 60% conservative limit imposed by the country’s debt management constitution.

And its approach to ensuring inclusive growth across different regions in the archipelago has contributed to its resilient economy.

In the past, Indonesia’s development focused mainly on the island of Java. This is because it’s the most densely populated, and the location of the current capital city and central business district.

However President Joko Widodo has attempted to spread infrastructure development equally across other islands. This aligns with Indonesia’s spirit of Bhinneka Tunggal Ika (Unity in Diversity), inherited by its founding fathers.

This approach is vital as inequality can adversely affect key socioeconomic and political outcomes. In ensuring inclusive and sustainable growth, Indonesia can better manage the risk of civil tension, such as that which occurred in the country during the 1998 Asian economic crisis. Civil unrest would jeopardise the country’s track record of peace over the last two decades.

Other G20 countries should follow Indonesia’s approach to sustainable and inclusive growth. This is important to safeguard global economic stability – one of the key agreements in the G20 2022 leaders’ declaration.

Climate action is needed

Nevertheless, there’s more Indonesia can do.

First, Indonesia can further optimise its economic output by enhancing technology. A study by Indonesia’s Ministry of Finance and the Asian Development Bank found adopting new technologies could increase productivity and add 11% to accumulated GDP growth between 2020 and 2040. This represents an increase of average annual GDP growth rate from 5.2% to 5.7%.

Second, Indonesia needs to greatly improve its climate policies and actions. With its growing economic power, energy consumption will continue to increase.

The G20 has put the sustainable economy, energy transition, and climate actions among its core issues. Leadership in tackling greenhouse gas emissions is urgently needed if Indonesia is to maintain a substantive role in the organisation.

With major export markets moving away from coal power, Indonesia needs to diversify its economy and fully realise its green energy potential.

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