Indonesian Economy: Micro, Small & Medium Sized Enterprises
Indonesia's Finance Minister Sri Mulyani Indrawati emphasizes the importance of cooperation between the government and Indonesia's micro, small and medium enterprises (including start ups). Indrawati spoke at the 12th World Islamic Economic Forum (WIEF) that opened on Tuesday (02/08) in Jakarta. Last week, Indrawati was appointed Indonesia's new finance minister in a cabinet reshuffle, replacing Bambang Brodjonegoro. She had already been finance minister between 2005 and 2010 under former president Susilo Bambang Yudhoyono.
In her speech Indrawati stated that Indonesia's micro, small and medium sized enterprises are the backbone of the Indonesian economy. These enterprises account for 99 percent of the total amount of enterprises that are operating in Indonesia and they create a total of 107.6 million jobs in Southeast Asia's largest economy. Moreover, Indonesia's micro, small and medium-sized companies contribute 60.6 percent to Indonesia's gross domestic product (GDP). All these facts indicate the importance of the existence of these companies. In fact, they cushion the country's economy in times of shocks. However, the majority of these companies do not pay taxes, while most workers belong to the informal sector.
Sri Mulyani Indrawati also emphasized that after political decentralization (in the post-Suharto era) Indonesia is now in the middle of the process of economic decentralization in which strong economic growth has become felt in the regions rather than the center. Therefore, the micro, small and medium-sized companies in the rural areas have great potential. However, they need to engage in larger networks and it should be made easier for them to obtain credit by lowering the interest rates of Indonesia's micro credit program (in Indonesian: Kredit Usaha Rakyat, KUR), particularly for those that are export-oriented.
Indrawati added that most emerging markets are too focused on economic development in the cities, while more-or-less neglecting the rural areas. However, part of economic decentralization is that the rural areas become increasingly important for the overall economy. Here lies a great task for the micro, small and medium-sized enterprises. To support these companies, the Indonesian government has already simplified the permitting process for small and medium-sized companies in one of the economic stimulus packages as well as opening-up 19 sub-sectors for these companies and cooperatives. Moreover, in 62 sectors foreign investment is only allowed provided the foreign investor partners with local small and medium-sized enterprises.
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Good move by the new finance minister.