1. PREREQUISITES TOPREREQUISITES TO
INNOVATION-DRIVEN ECONOMY:INNOVATION-DRIVEN ECONOMY:
THE CASE OF INDONESIATHE CASE OF INDONESIA
Faisal Basri
13 September13 September 20132013

2. Part IPart I
Our Identity as a Maritime CountryOur Identity as a Maritime Country

3. The uniqueness of IndonesiaThe uniqueness of Indonesia
Indonesia has a coastal
line of 95,181 km, the
4th
longest In the world
with a wide variety of
marine habitats and
other natural resources.

4. The Largest archipelagic stateThe Largest archipelagic state
“Untuk membangun Indonesia menjadi negara besar, negara kuat, negara makmur, negara damai yang merupakan
National Building bagi negara Indonesia, maka negara dapat menjadi kuat jika dapat menguasai lautan. Untuk
menguasai lautan kita harus menguasai armada yang seimbang.”
(Ir. Soekarno dalam National Maritime Convention I (NMC), 1963)

5. Price disparities (Rupiah)Price disparities (Rupiah)
Region Rice Wheat flour Sugar Cooking oil Salt
East Jawa 4,250 3,606 6,000 4,150 1,600
West Kalimantan 4,400 4,000 5,800 4,500 2,450
East Kalimantan 4,500 4,000 6,500 4,500 2,000
South Sulawesi 4,400 3,500 6,500 4,500 2,000
East Nusa
Tenggara 4,200 4,500 5,800 6,300 2,000
Merauke 5,000 7,000 7,000 6,670 3,000
Nabire 6,000 10,000 11,000 11,000 4,000
Paniai 18,000 7,500 8,000 7,000 8,000
Source: Ministry of Trade.

6. Which one cheaper?Which one cheaper?
“Medan” orange, Indonesia Mandarin orange, China
Source: World Bank

7. Prices of oranges…Prices of oranges…
 Prices were measured in a supermarket in Jakarta
 Jeruk Medan……Rp. 20,000 per kg
 Jeruk China…………..Rp. 17,000 per kg
 WHY IS THIS THE CASE?
Source: World Bank

8. This explains why oranges from Medan areThis explains why oranges from Medan are
more expensive to some extent….more expensive to some extent….

9. Cement in Papua is 20
times more expensive
than in Jakarta because
of shipping costs
Container Shipment cost:
Padang – Jakarta = US$600
Jakarta – Singapore = US$185
Other ironic factsOther ironic facts
Source: R.J. Lino’s presentatatiom, March 2011.

10. Logistics performance index, 2012, n=155Logistics performance index, 2012, n=155
Source: World Bank, Logistic Performance Index: LPI Results 2012 (http://lpisurvey.worldbank.org/)
Country
LPI
rank
LPI
score Customs
Infra-
structure
International
shipments
Logistic
competence
Tracking &
tracing
Time-
liness
Singapore 1 4.13 4.10 4.15 3.99 4.07 4.07 4.39
Hong Kong 2 4.12 3.97 4.12 4.18 4.08 4.09 4.28
China 26 3.52 3.25 3.61 3.46 3.47 3.52 3.80
Malaysia 29 3.49 3.28 3.43 3.40 3.45 3.54 3.86
Thailand 38 3.18 2.96 3.08 3.21 2.98 3.18 3.63
Brazil 45 3.13 2.51 3.07 3.12 3.12 3.42 3.55
India 46 3.08 2.77 2.87 2.98 3.14 3.09 3.58
Philippines 52 3.02 2.62 2.80 2.97 3.14 3.30 3.30
Vietnam 53 3.00 2.65 2.68 3.14 2.68 3.16 3.64
Indonesia 59 2.94 2.53 2.54 2.97 2.85 3.12 3.61
Cambodia 101 2.56 2.30 2.20 2.61 2.50 2.77 2.95
Lao, PDR 109 2.50 2.38 2.40 2.40 2.49 2.49 2.82
Myanmar 129 2.37 2.24 2.10 2.47 2.42 2.34 2.59

11. Economic disintegration within IndonesiaEconomic disintegration within Indonesia
Source: R.J. Lino’s presentatatiom, March 2011.

12. The sea unites IndonesiaThe sea unites Indonesia

13. But…. the solution is this!!!But…. the solution is this!!!

14. Part IIPart II
Perekonomian IndonesiaPerekonomian Indonesia

15. Other potentials in food sectorOther potentials in food sector
 Available of rich volcanic soil in a great extent. Of
the 188 million hectare land area, around 94
million hectares are biophysically suitable for
agricultural activities (e.g. physiographic, shape of
regions, slopes, and climate)
 High level of rainfall
 Tropical climate that is suitable for growing
various kinds of plants and fish
 Rare occurrence of natural disturbances such as
hurricane and heat wave

16. Trade deficit: food productsTrade deficit: food products
Sources: Badan Pusat Statistik.
US$ billions

17. Weighted total of all category scores
(0-100 where 100 = most favourable)
Country Ranking Score
United States 1 89.5
France 4 86.8
Netherlands 5 86.7
New Zealand 11 82.7
Australia 14 81.1
Japan 16 80.7
South Korea 21 77.8
Israel 22 77.7
Malaysia 33 63.9
China 38 62.5
Thailand 45 57.9
Viet Nam 55 50.4
Philippines 63 47.1
Indonesia 64 46.8
Myanmar 78 37.2
Congo 105 18.4
Source: Economist Intelligence Unit, Global food Security index 2012., London, 2012.
Global food security index 2012Global food security index 2012

18. Trade deficit: oil and gasTrade deficit: oil and gas
*January-July.
Source: Badan Pusat Statistik.
-25
-20
-15
-10
-5
0
5
10
15
20
25
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Gas Oil & oil products Oil & gas
US$ billions

19. Trade balance of oil and oil productsTrade balance of oil and oil products
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*
Crude Oil
Exports 5,621 6,241 8,146 8,169 9,226 12,419 7,820 10,403 13,829 12,293 5,936
Imports -3,928 -5,831 -6,797 -7,853 -9,057 -10,062 -7,362 -8,531 -11,154 -10,803 -8,075
(X - M) 1,694 410 1,349 316 169 2,357 458 1,872 2,675 1,490 -2,139
Oil Products
Exports 1,548 1,654 1,932 2,844 2,879 3,547 2,262 3,967 4,777 4,159 2,385
Imports -3,583 -5,892 -10,646 -11,080 -12,787 -20,231 -11,129 -18,018 -28,134 -28,680 -16,399
(X - M) -2,035 -4,238 -8,714 -8,236 -9,908 -16,684 -8,876 -14,051 -23,357 -24,521 -14,014
Total
Exports 7,169 7,896 10,078 11,013 12,105 15,966 10,082 14,370 18,606 16,452 8,321
Imports -7,510 -11,724 -17,443 -18,933 -21,844 -30,293 -18,491 -26,549 -39,288 -39,483 -24,474
(X - M) 342 -3,828 -7,365 -7,920 -9,739 -14,327 -8,409 -12,179 -20,682 -23,031 -16,153
* January-July.
Source: BPS.

20. Trade deficit: manufacturing productsTrade deficit: manufacturing products
US$ billions
Sources: Badan Pusat Statistik.

21. Source: World Bank, “Indonesia Economic Quarterly: Maintaining Resilience,” October 2012.
Indonesia’s exports have shifted toward rawIndonesia’s exports have shifted toward raw
commodities & resource-based manufacturedcommodities & resource-based manufactured
(Share of Indonesia’s non-oil and gas exports, percent)

22. Exports were more dominated by limitedExports were more dominated by limited
number of commoditiesnumber of commodities
Source: World Bank, Indonesia Economic quarterly, July 2013: 3.
Export composition, 2012 (percent)

23. Foreign merchandise tradeForeign merchandise trade
2010 2011 2012 2013* 2010 2011 2012 2013*
Total export 157.7 203.5 190.0 106.2 35.4 29.0 -6.6 -6.1
Non-oil and gas 129.7 162.0 153.1 87.6 33.0 24.9 -5.5 -2.7
Oil and gas 28.0 41.5 37.0 18.6 47.5 48.3 -10.9 -19.4
Total import 135.6 177.4 191.7 111.8 40.0 30.7 8.0 -0.9
Non-oil and gas 108.2 136.7 149.1 85.6 39.0 26.2 9.0 -3.4
Oil and gas 27.4 40.7 42.6 26.2 44.2 48.4 4.6 8.5
Surplus (Deficit) 22.1 26.1 (-1.7) (-5.6)
Non-oil and gas 21.5 25.3 4.0 2.0
Oil and gas 0.6 0.8 (-5.6) (-7.6)
Billion US$ Growth (yoy)
Description
*January.-July..
Source: BPS.

24. 2011 2012 Q1-12 Q2-12 Q3-12 Q4-12 Q1-13 Q2-13
I. CURRENT ACCOUNT 1,685 -24,431 -3,164 -8,176 -5,264 -7,827 -5,819 -9,848
A. Goods, net (Trade account) 34,783 8,618 3,810 818 3,190 801 1,602 -601
1. Exports, f.o.b. 200,788 188,496 48,353 47,538 45,549 47,056 45,231 45,670
2. Imports, f.o.b. -166,005 179,878 -44,543 -46,720 -42,360 -46.255 -43,629 -46,272
B. Services, net -10,632 -10,331 -1,983 -2,790 -2,359 -3,198 -2,480 -3,070
C. Income, net -26,676 -26,748 -6,048 -7,101 -6,955 -6,643 -6,044 -7,140
D. Current Transfer, net 4,211 4,029 1,058 898 861 1,213 1,102 962
II. CAPITAL & FINANCIAL ACCOUNT 13,767 25,148 2,096 5,087 5,885 12,080 -328 8,199
A. Capital Account 33 37 5 3 8 22 1 2
B. Financial Account 13,734 25,111 2,091 5,085 5,878 12,058 -329 8,196
1. Direct investment 11,728 13,982 1,550 3,747 4,539 4,146 3,876 3,324
2. Portfolio investment 3,806 9,206 2,628 3,873 2,516 190 2,760 2,529
3. Other investment -1,801 1,922 -2,087 -2,535 -1,177 7,722 -6,966 2,343
III. NET ERRORS & OMISSIONS -3,395 -503 34 277 213 -1,027 468 -827
IV. RESERVES & RELATED ITEMS -11,857 -215 1,034 2,811 -834 -3,225 6,615 2,477
Balance of paymentsBalance of payments (US$ million)(US$ million)
Source: Bank Indonesia.

25. Part IIIPart III
Human Resources and InnovationHuman Resources and Innovation

26. Human development indexHuman development index
Sources: UNDP, Human Development Report 2013.
Pada tahun 2030, HDI
bisa mencapai tingkat
seperti Malaysia
sekarang.

27. HDI in selected countries, 2012 (n = 186)HDI in selected countries, 2012 (n = 186)
Sources: UNDP, Human Development Report 2013.
HDI HDI Overall Change Adjusted
Rank Country Value Value loss (%) in rank Rank
3 United States 0.937 0.821 12.4 -13 16
28 Czech Republic 0.873 0.826 5.4 9 19
45 Argentina 0.811 0.653 19.5 -8 53
71 Venezuela 0.748 0.549 26.6 -17 88
85 Brazil 0.730 0.531 27.2 -12 97
91 Colombia 0.719 0.519 27.8 -11 102
92 Sri Lanka 0.715 0.607 15.1 11 81
101 China 0.699 0.543 22.4 0 101
103 Thailand 0.690 0.543 21.3 0 103
108 Bolivia 0.675 0.444 34.2 -12 120
114 Philippines 0.654 0.524 19.9 4 110
121 Indonesia 0.629 0.514 18.3 3 118
127 Viet Nam 0.617 0.531 14.0 14 113
136 India 0.554 0.392 29.3 1 135
138 Lao, PDR 0.543 0.409 24.7 4 134
138 Cambodia 0.543 0.402 25.9 3 135
161 Haiti 0.456 0.273 40.2 -7 168
Inequality-adjusted HDI

28. Profile of workforce by job statusProfile of workforce by job status
Informal
workers
54%
Employees
with no
contract
38%
Permanent
contract
employees
6%
Employers
2%
Source: World Bank, presented by Shubham Chaudhuri at Kompas Economic Panel Discussion, June 21, 2012.
Pada tahun
2030, pekerja
formal
diharapkan
mencapai 75%

29. Source: BPS.
Workers and Unemployment by educationWorkers and Unemployment by education
20.6
11.4
28.8
14.5
18.9
24.6
23.7
39.9
8.0 9.6
0
20
40
60
80
100
Workers Unemployed
Diploma+
Senior high
Juniorhigh
Elementary
Not completedprimary
August 2011

30. 30

31. Approach to educationApproach to education
 Proper approach: set the targets first
Education is a function of:
 Family
 Peers
 School inputs
 Innate ability
 Current approach: set the budget first

32. Health expenditure, 2011Health expenditure, 2011
0 3 6 9 12 15 18
South Sudan
Qatar
Myanmar
Indonesia
Lao PDR
Malaysia
Bangladesh
India
Philippines
Thailand
Timor-Leste
China
Cambodia
Russia
Turkey
Vietnam
Israel
South Africa
Brazil
Australia
Norway
Sweden
Switzerland
Germany
France
United States
Health expenditure, total (% of GDP)
Total health expenditure is the sum of
public and private health expenditure. It
covers the provision of health services
(preventive and curative), family planning
activities, nutrition activities, and
emergency aid designated for health but
does not include provision of water and
sanitation.
Health expenditure, total (% of GDP)
Total health expenditure is the sum of
public and private health expenditure. It
covers the provision of health services
(preventive and curative), family planning
activities, nutrition activities, and
emergency aid designated for health but
does not include provision of water and
sanitation.
Sources: World Bank, World Development Indicators.

33. Selected basic health indicatorsSelected basic health indicators
1. % Age 5 are under weight: Percentage of children under age 5 falling two standard deviations or more below the median weight-for-age of the
reference population, 2010 (UNDP)
2. Under 5 mortality: probability of dying between birth and exactly age 5, expressed per 1,000 live births, 2010 (UNDP)
3. Maternal mortality ratio: ratio of the number of maternal deaths to the number of live births in a given year, expressed per 100,000 live births,
2010 (UNDP)
4. Malaria: deaths due to malaria expressed per 100,000 people, 2008 (UNDP)
5. Tuberculosis: estimated rate per 100,000 population, 2011 (WHO)
Country
% Age 5
are under
weight
Under 5
mortality
rate
Maternal
mortality
ratio Malaria Tuberculosis
Brazil 1.7 19 56 0.1 42
China 3.8 18 37 0.0 75
Thailand 7.0 13 48 0.4 124
South Africa 8.7 57 300 0.2 993
Malaysia 12.9 6 29 0.1 81
Indonesia 18.4 35 220 3.2 187
Vietnam 20.2 23 59 0.1 199
Sri Lanka 21.1 17 35 0.0 66
Philippines 21.6 29 99 0.2 270
India 42.5 63 200 1.9 181

34. The global competitiveness index frameworkThe global competitiveness index framework
Sources: World Economic Forum, The Global Competitiveness Report 2013-2014..

35. Global competitiveness and its pillars (rank, n=148)Global competitiveness and its pillars (rank, n=148)
Sources: World Economic Forum, The Global Competitiveness Report 2013-2014..
Country Innovation
GCI
(Total)
Basic
requirements
Efficiency
enhancers
Innovation and
sophistication factors
Finland 1 3 7 9 2
Switzerland 2 1 3 5 1
Israel 3 27 39 26 8
Germany 4 4 9 8 4
Japan 5 9 28 10 3
Sweden 6 6 8 7 5
United States 7 5 36 1 6
Taiwan 8 12 16 15 9
Singapore 9 2 1 2 13
Netherlands 10 8 10 11 7
Korea 17 25 20 23 20
Malaysia 25 24 27 25 23
China 32 29 31 31 34
Indonesia 33 38 45 52 33
South Africa 39 53 95 34 37
India 41 60 96 42 41
Brazil 55 56 79 44 46
Thailand 66 37 49 40 52
Philippines 69 59 78 58 58
Vietnam 76 70 86 74 85
Russia 78 64 47 51 99
Yemen 148 145 145 144 139

36. Part IVPart IV
Strengthen the Heart of The EconomyStrengthen the Heart of The Economy

37. Financial deepeningFinancial deepening
Indonesia has yet to optimize its domestic resourcesIndonesia has yet to optimize its domestic resources
Source: Solana (WEF) based on World Bank dan IMF

38. The financial development index (1)The financial development index (1)
Source: World Economic Forum, The Financial Development Report 2010.
Country
2011 rank
(n = 60)
2010 rank
(n = 58)
2011 score
(1-7)
Change
in
score
Banking
Rank
Banking
score
Hong Kong SAR 1 4 5.16 +0.12 3 5.43
United States 2 1 5.15 +0.03 21 4.19
Singapore 4 3 4.97 -0.08 16 4.40
Malaysia 16 17 4.24 +0.04 15 4.49
Korea 18 24 4.13 +0.13 20 4.21
China 19 22 4.12 +0.08 9 4.92
South Africa 29 32 3.64 +0.11 33 3.53
Brazil 30 31 3.61 +0.09 41 3.31
Thailand 35 34 3.32 -0.04 31 3.70
India 36 37 3.29 +0.05 43 3.12
Russian Fed 39 40 3.18 -0.04 57 2.35
Mexico 41 43 3.16 +0.09 47 2.82
Turkey 43 42 3.14 -0.02 34 3.48
Philippines 44 50 3.13 +0.17 36 3.41
Vietnam 50 46 2.98 -0.05 29 3.91
Indonesia 51 51 2.92 +0.02 53 2.69
Venezuela 59 55 2.44 -0.12 58 2.34
Nigeria 60 57 2.44 +0.03 56 2.43

39. The financial development index (2)The financial development index (2)
Source: World Economic Forum, The Financial Development Report 2010.
Country
2010 rank
(n = 57)
2009 rank
(n = 55)
2010 score
(1-7)
Private credit
to GDP (%)
Bank deposits
to GDP (%)
United States 1 3 5.12 211 78
Singapore 4 4 5.03 91 113
Japan 9 9 4.67 95 183
Germany 13 12 4.49 102 104
Malaysia 17 22 4.20 96 100
China 22 26 4.03 n.a. 145
Korea 24 23 4.00 90 61
South Africa 31 32 3.53 162 63
Brazil 32 34 3.53 54 61
Thailand 34 35 3.37 78 84
India 37 38 3.24 48 63
Russian Fed. 40 40 3.21 39 31
Vietnam 46 45 3.03 90 74
Philippines 50 50 2.97 27 46
Indonesia 51 48 2.90 23 34
Bangladesh 55 54 2.55 36 50
Venezuela 56 55 2.55 27 31
Nigeria 57 52 2.43 24 21

40. Source: World Bank.
Domestic credit provided by the banking sector includes all credit to various sectors on a
gross basis, with the exception of credit to the central government, which is net. The
banking sector includes monetary authorities and deposit money banks, as well as other
banking institutions where data are available (including institutions that do not accept
transferable deposits but do incur such liabilities as time and savings deposits). Examples
of other banking institutions are savings and mortgage loan institutions and building and
loan associations.
Domestic credit provided by banking sectorDomestic credit provided by banking sector

41. Source: Asian Development Bank.
Size of local currency bonds market (1)Size of local currency bonds market (1)
% of GDP, March 2013

42. Source: Asian Development Bank.
Size of total local currency bonds market (2)Size of total local currency bonds market (2)
% of GDP
102
74 73
48
27
35
17
31
0
37
215
123
106
90
74 69
46
39
21
14
0
50
100
150
200
250
December 2000 March2013

43. Source: World Bank, World Development Indicators.
Stock market capitalizationStock market capitalization
125
159
32
24
32
67
49
16
137
129
89
78 74
60
46 46
15
0
20
40
60
80
100
120
140
160
180
2000 2011
Percent of GDP

44. Year of introduction of social insuranceYear of introduction of social insurance
Industrial Unemploy- Family
Country accident Health Pension ment allowance
Belgium 1903 1894 1900 1920 1930
Netherlands 1901 1929 1913 1916 1940
France 1898 1898 1895 1905 1932
Italy 1898 1886 1898 1919 1936
Germany 1871 1883 1889 1927 1954
Ireland 1897 1911 1908 1911 1944
U.K. 1897 1911 1908 1911 1945
Denmark 1898 1892 1891 1907 1952
Norway 1894 1909 1936 1906 1946
Sweden 1901 1891 1913 1934 1947
Finland 1895 1963 1937 1917 1948
Austria 1887 1888 1927 1920 1921
Switzerland 1881 1911 1946 1924 1952
Australia 1902 1945 1909 1945 1941
New Zealand 1900 1938 1898 1938 1926
Canada 1930 1971 1927 1940 1944
U.S.A. 1930 -- 1935 1935 --
Sources: Christopher Pierson, Beyond the Welfare State, 3rd
edition. Cambridge: Polity Press, 2006, p.110.

45. Assumptions: 32 million formal workers; wages Rp 1.5 million/
month, contribution 5%, wage growth 10%, workers growth 6%
Year
Contributions
Rp billion/year
Accumulation
Rp billion
1st
28.800 28.800
2nd
33.581 62.381
3rd
39.155 101.536
4th
45.655 147.191
5th
53.234 200.425
6th
62.070 262.495
7th
72.374 334.869
8th
84.388 419.257
9th
98.397 517.654
10th
114.731 632.385
Health insurance contributionsHealth insurance contributions
Source: Hasbullah Thabrany, “Dampak Ekonomi Pelaksanaan SJSN,” presented at GP
Farmasi Round Table Discussion on April 27th
2010.

46. Pension funds (contribution = 6%)Pension funds (contribution = 6%)
Pension funds
are the very
significant
source of funds
for long-term
investments.
Year
Contributions
Rp billions/year
Accumulation
Rp billions/year
1st
34,560 34,560
2nd
40,297 74,857
3rd
46,986 121,843
4th
54,786 176,629
5th
63,880 240,509
6th
74,485 314,994
7th
86,849 401,843
8th
101,266 503,109
9th
118,076 621,185
10th
137,677 758,862
Source: Hasbullah Thabrany, “Dampak Ekonomi Pelaksanaan SJSN,” presented at GP
Farmasi Round Table Discussion on April 27th
2010.

47. Part VPart V
Strengthen the Heart of The EconomyStrengthen the Heart of The Economy

48. Avoiding the middle-income trapAvoiding the middle-income trap
880
1,260
1,400
1,530
2,470
3,420
5,210
7,610
9,740
9,800
11,630
12,700
16,392
22,670
36,560
47,210
0 10,000 20,000 30,000 40,000 50,000
Cambodia
Lao PDR
Vietnam
India
Philippines
Indonesia
Thailand
South Africa
Mexico
Malaysia
Brazil
Russia
Taiwan
Korea
Hong Kong
Singapore
Sources: World Bank, World Development Indicators.
High income
Gross national Income per Capita, Current US$, 2012
≥ US$ 12,616

49. 0
2
4
6
8
10
First semester (Jan-Jun)
Source: BPS.
Non-tradable
GDP
Tradable
Low quality of growth, 2000-2013Low quality of growth, 2000-2013
Percent

50. FocusFocus
 Agriculture
 Maritime
 IT

51. Thank You
Terima Kasih
Email: faisal.basri@gmail.com
Twitter: @faisalbasri
Infografis: visuallyconomic.com
Blog: kompasiana.com/faisalbasri
Blog: faisalbasri01.wordpress.com