Indonesia

Indonesia sprawls across 17,508 islands spanning three time zones and two continental shelves—a geographic complexity that explains both its extraordinary diversity and its governance challenges. The archipelago sits where the Indian and Pacific oceans meet, controlling the Strait of Malacca through which 40% of global trade passes. This position made Indonesia a prize for colonial powers and a regional anchor for independent development.

The Dutch colonized the Indies from 1602, extracting spices, sugar, and coffee through cultivation systems that impoverished Javanese peasants while enriching Amsterdam merchants. Independence came in 1945 after Japanese occupation; Sukarno's "Guided Democracy" attempted nationalist development until the 1965-66 anti-communist massacres killed perhaps 500,000 people. Suharto's New Order regime (1966-1998) delivered 7% average annual growth through oil exports, foreign investment, and manufacturing expansion—until the 1997 Asian financial crisis contracted output by 13.5% and ended authoritarian rule.

Java remains the economic core. With GDP of $791 billion in 2024, this single island—home to Jakarta and 150 million people—generated 57% of national output and 39% of exports. The archipelago's economic geography concentrates industrial capacity, financial services, and political power on this volcanic spine while outer islands provide commodities.

Indonesia dominates global markets for two products: palm oil and nickel. As the world's largest palm oil producer and exporter (half of global supply), the industry generates 4.5% of GDP and employs 3 million workers—while destruction of rainforest habitats draws international criticism. Nickel presents the more dynamic story: following the 2020 ban on raw ore exports, Indonesia built refining capacity that made it the global leader in processed nickel for stainless steel and electric vehicle batteries. Production increased 25% as foreign investment flooded into smelters.

Manufacturing contributes 17-21% of GDP and employs over 15 million workers, but its share has declined from 22% in 2010—deindustrialization even as the economy grows. Manufactured goods now comprise over 70% of exports, led by processed nickel, palm oil products, and automotive components. Coal mining persists despite decarbonization pressures; Indonesia remains a major thermal coal exporter to Asian power plants.

The economy grew approximately 5.1% in 2025, with Q1 growth at 4.87%. FDI surged 12.7% to $13.67 billion in Q1 2025, concentrated in mining and metal smelting (23% of the total, or $6.5 billion). Trade surplus reached $4.33 billion in March 2025 as palm oil and nickel exports expanded.

Indonesia projects seventh-largest global economy status by 2030 and top-five by 2050—forecasts that depend on managing decentralization across thousands of islands, moving the capital to new city Nusantara in Kalimantan, and upgrading infrastructure that still constrains productivity outside Java.

By 2026, Indonesia will likely continue its commodity-driven growth while the nickel downstream strategy matures and palm oil faces intensifying sustainability pressures. The archipelago that geography made difficult to govern has become too large to ignore in global supply chains.