Indonesia remains an attractive market, despite its slow recovery from the devastating effects of the financial and economic crisis in 1997-98. The crisis has adversely affected the populationÂ’s purchasing power, with GDP per head falling from US$1,140 in 1997 to US$470 in 1998. Income levels are expected to approach pre-crisis levels again by 2005, based on our economic forecast.

The small urban middle class has driven consumer demand
Prospects in the medium term will be constrained by suboptimal growth rates and stagnant incomes. Consumer demand has sustained domestic economic activity since the crisis, driven by Indonesia’s relatively small urban middle class (estimated to number 30m). Recent signs of declining growth in consumption expenditure do not bode well for market prospects in 2003-04. Furthermore, the urban middle classes tend to finance their purchases with credit, and the latest data show declining growth rates in credit for consumption. This suggests that households may be facing increasing debt levels again.