Transformation and Shift from the World Economic Power on
Indonesian Economic Policy Direction
Navik Istikomah
1
and Indra Suhendra
2
1
Universitas Pendidikan Indonesia, Setiabudhi 229 street, Bandung, Indonesia
2
Universitas Sultan Ageng Tirtayasa, Raya Jak KM.4, Panancangan street, Serang, Indonesia
Keywords: World economic power, Transformation.
Abstract: The global economic crisis has accelerated the shift of world economic power. The transformation of the
changing world economic power, requiring Indonesia to become a global player. Indonesia becomes the
initiator in building the integration and economic cooperation in the ASEAN region through AFTA
(ASEAN Free Trade Area) as well as strategic decisions in the economic field in the formation of ASEAN
Economic Community (AEC). Strategies used to accelerate development to benefit from the transformation
of changes in world economic power, namely: (i) Strategies to increase the potential of the region through
the development of growth centers within the economic corridor; (ii) Strategies to strengthen national
connectivity, and (iii) Strategies to improve the capacity of Human Resources and Science and Technology.
1 INTRODUCTION
The global economic crisis triggered by sub prime
mortgage cases in the United States at the end of
2007 is much worse than previous crises. The global
economic crisis has accelerated the shift from the
world economic power Sheldon (2010), Reinhart
(2008), Akyuz (2009). In the next few years,
China's contribution to world GDP based on current
exchange rate will be in second position after the
United States, replacing Japan's position down to
third (Table 1.1).
Table 1: World GDP Share Year 2007 (%)
No
Country
Exchange
Rate by PPP*
Exchange
Rate
Applies
1.
USA
21,36
25,51
2.
China
10,83
5,99
3.
Jepang
6,61
8,08
4.
India
4,58
2,02
5.
Inggris
3,30
5,11
6.
Prancis
3,17
4,72
7.
Brazilia
2,81
2,42
8.
Italia
2,76
3,88
Source: IMF, World Economic Outlook, 2008.
Information: *PPP = purchasing power parity
Based on Table 1, the shift in world economic
power is increasingly striking by using the value of
GDP based on purchasing power parity. In addition
to China which has overtaken Japan, India also
emerged fourth after Germany, Russia in the
seventh, and Brazil in the order of nine. Coupled
with Korea, Mexico and Turkey, renewed the power
dubbed Emerging Market-7 (EM-7). This new
power is a major support for world economic growth
to replace the G7 countries. At the global macro
level, the financial crisis is one of the triggers of
accelerating the shift of global economic power from
developed countries toward progressive or better
known as New Emerging Markets. The same thing
happened to the trade sector, where in 2009, China
has become the largest exporter in the world,
shifting Germany which has been years in the top
position. At number 9 is Russia and at 12th place is
Korea. The rest is still occupied by the United States
and European countries. Meanwhile, countries
classified as Emerging Market dominate in the
middle board. Indonesia has also entered in this
middle-class group (Shu-Sen Chang, 2013,
Papatheodorou, 2010) Based on the above
description, we can make the following problem
formulation: What is the direction of Indonesia's
Istikomah, N. and Suhendra, I.
Transformation and Shift from the World Economic Power on Indonesian Economic Policy Direction.
In Proceedings of the 2nd International Conference on Economic Education and Entrepreneurship (ICEEE 2017), pages 479-482
ISBN: 978-989-758-308-7
Copyright © 2017 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
479

foreign policy, especially the economic field in
responding to the transformation or shifting of world
economy, so that it gets positive benefits. 2. What
strategies can Indonesia undertake to accelerate
development in order to achieve the positive benefits
of the world economic transformation or shift.
2 LITERATURE REVIEW
Economic transformation is a process of changing
economic structure characterized by a shift from the
industrial and service sectors, where it can affect the
Gross Regional Domestic Product (GRDP) in a
region or State. In general economic structural
change, it is often referred to as structural
transformation, which can be defined as a sequence
of changes interconnected with one another in the
composition of demand, trade, production and use of
the factors of production necessary to support the
development process and economic growth.
Sustainable (Chenery, 1979). In analyzing the
economic structure there are two main theories,
namely:
Arthur Lewis Theory. In his theory, Lewis
assumes that a single-country economy is essentially
divided into two, namely; the traditional economy in
rural areas dominated by the agricultural sector and
the modern urban economy with industry as the
main sector. In rural areas, population growth is high
resulting in excess supply of labor. Due to
oversupply of labor. This, the wage rate becomes
very low. It attracts a lot of manpower, moving
fromi the first sector to the second sector resulting in
a process of migration and urbanization. In addition,
the level of income in the country concerned
increases so that people tend to consume a variety of
industrial products and services. This is the main
engine of output growth in non-agricultural sectors.
Hollins Chenery Theory Chenery's theory
focuses on structural change in the stages of
economic processes in a country undergoing
transformation from traditional agriculture to
industrial sector as the main engine of economic
growth. There are several factors causing economic
transition, namely; (3) The pattern of income
distribution (4) Characteristics of industrialization
(5) Existence of natural resources, (6) Foreign trade
policy. A country that implements a closed-door
policy (inward & lookingpolicy), the pattern of its
industrialization results will grow inefficiently
compared to countries with outward looking policy.
Policy Approach There is a simple way to
approach trade policy for development that is
outward-looking or inward-looking policy. Outward-
looking development policy is a policy that can
encourage export value. Meanwhile, the policy of
inward-looking development is a policy that
encourages or favors domestic goods, including the
development of domestic technology, limits imports,
and weakens foreign investment. In essence, this
simple development strategy relation is concerned
with import substitution or export promotion.
3 METHODS
This study is descriptive from various literary
perspectives with case study approach on
international economic policy. Stages include
internal and external strenght analysis, formulation
and selection of strategies, implementation and
evaluation. The steps taken to achieve the goal are 1)
List all the variables that need to be researched, 2)
Search for each variable on "subject encyclopedia",
3) Select descriptions of necessary materials from
available sources, 4) Check the index that contains
the variables and topics of the problem studied, 5)
Furthermore, the more specific is to look for articles,
books, and biographies that are very helpful to
obtain materials that are relevant to the problem
under study. 6) Once relevant information is found,
the researcher then "reviews" and organizes the
literature in order of importance and relevance to the
problem under study, 7) Information materials
obtained are read, recorded, organized and rewritten.
8) In the last step, the process of research writing of
the materials that have been collected together in a
concept research.
4 RESULTS AND DISCUSSION
4.1 Indonesia's Foreign Economic
Policy in Responding to the
Transformation of Changes in
World Economic Power
Indonesia's economic progress has increased
Indonesia's role in the global economy. Indonesia
currently ranks 17th largest economy into the world,
surpassing some developed countries such as
Switzerland, Norway, Sweden, and South Africa. In
2010 our income is already above US $ 3,000. The
role of Indonesia in the context of bilateral, regional
ICEEE 2017 - 2nd International Conference on Economic Education and Entrepreneurship
480

and international looks very strong, seen from events
held in Indonesia, such as; ASEAN Summit, East
Asian Summit (EAS), and Bali Democracy Forum.
The Indonesia Initiative in establishing regional
economic integration and cooperation in ASEAN
through AFTA (ASEAN Free Trade Area) as well as
economic strategic decisions on the formation of an
ASEAN Economic Community (AEC), which has
been agreed to be implemented by the end of 2015.
Asean advanced and strong is part of Indonesia's
national interests. Therefore, ASEAN needs to be
directed into a stable and leading area, especially
with the collapse of some areas. Asean as an
economic unity has been great potential to take part
in global economic competition.
Single market and single production base which
become a pillar of ASEAN Economic Community
(AEC), until now have been realized 82%, in which
includes facility to flow of goods, service,
investment, worker and capital. Indonesia's foreign
economic policy is important to be focused on
strengthening investment mechanisms, infrastructure
toughness and connectivity availability, as it is a key
factor supporting the potential for market and
production movements, such as; Movement of
capital, human turnover for travel, use of
communication access, transportation, and so forth.
Indonesia has an interest in the European crisis,
considering Indonesia's non-oil and gas exports to
Europe account for 13.4% of Indonesia's total
exports, reaching US $ 14,388 billion. The European
crisis became a challenge for Indonesia when the
Indonesian export destination countries were
affected and could lead to multiplier effects of
Indonesia's export decline. It should be noted that
Europe is an important market for China and Japan,
whereas according to BPS 2010-2013 data show that
Indonesia's largest export destination countries are
China and Japan, which means both countries are the
most important trading and investment partners for
Indonesia. Therefore, if both countries are affected
by the European crisis, it will affect Indonesia's
exports in the long run.
4.2 Strategy for Increasing Regional
Economic Potential Through
Economic Corridor
The Acceleration and Expansion of Indonesia's
Economic Development is organized on the basis of
the development approach of existing and new
economic growth centers. This approach is
essentially an integration of sectoral and regional
approaches. Each region develops its superior
product. The purpose of developing these centers of
economic growth is to maximize agglomeration
benefits, explore regional potentials and advantages
and improve spatial inequality of Indonesia's
economic development. Development of economic
growth centers is done by developing industrial
clusters and Special Economic Zones (KEK). The
development of these growth centers is accompanied
by the strengthening of connectivity between centers
of economic growth and between economic growth
centers and the location of economic activities and
their supporting infrastructure. Overall, these centers
of economic growth and connectivity created the
Indonesian Economic Corridor.
4.3 National Connectivity
Strengthening Strategy
The successful implementation of the Acceleration
and Expansion of Indonesia's Economic
Development is highly dependent on the strength of
the degree of national economic connectivity (intra
and inter region) as well as the international
economic connectivity of Indonesia with the world
market.
4.4 Strategies for Strengthening
Human Resource and National
Science Capabilities
Improving the ability of human resources and
National Science and Technology become one of the
main strategies of the acceleration of economic
development of Indonesia. This is due to the era of
knowledge-based economy, the engine of economic
growth is heavily dependent on the capitalization of
the invention to the product of innovation. To realize
productivity improvement, it needs to be propagated
innovation proposal as the main driver of
transformation process of innovation-based
economic system through strengthening of education
system (human capital) and technological readiness
and strengthening of collaboration from three main
actors of product innovation development in national
innovation system, Which consists of; (A) the
government as a regulator, facilitator and catalyst;
(B) business actors / industries as users of the
invention; and (c) research institutions and
universities as producers of invention products.
Transformation and Shift from the World Economic Power on Indonesian Economic Policy Direction
481

5 CONCLUSIONS
The transformation of changes in world economic
power, requires Indonesia to become a global player,
should not be just geographically-static, that is; Han
ya waiting for economic benefits due to geographic-
static position. Several economic initiatives have
been undertaken both in the form of declarations of
intent and institutional building. Indonesia becomes
a pinnakarsa in building integration and economic
cooperation in the ASEAN region through AFTA
(ASEAN Free Trade Area) as well as strategic
decisions in the economic field in the formation of
an ASEAN Economic Community (AEC), which
has been agreed to be implemented by the end of
2015. In the context of the global level, the State of
Indonesia participates in overcoming the economic
crisis in Europe and America, conducted through the
G20 group. This is done with the understanding that
the global economy is increasingly globalized and
integrated makes the Indonesian economy is
inseparable from the global situation Strategies that
can be used to accelerate development to benefit
from the transformation of the changing world
economic power, as follows; Strategies to increase
the potential of the region through the development
of growth centers within the economic corridor;
Strategies strengthen national connectivity, as well
as; Strategy to improve the capacity of Human
Resources and Science and Technology.
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