Indonesia’s Reason To Smile

Posted on June 18th, 2009 at 4:19 am by Akhyari


Indonesia is now among the top 20 economies in the world (and on the UN Security Council) and its position within the G20 is assured by continuing growth rates. It is overtaking Belgium and Sweden and will very soon overtake Turkey to become the largest Muslim-led economy in the world. It is likely to keep growing and then join the top ten economies in the world sometime between 2020 and 2025.

Indonesia is really on the move despite the huge challenge regarding infrastructure and development. As long as it stays stable, with a strong democracy and gradually improving economic and financial management, then it will stay on track. Its economic results now speak for themselves and the country has much improved economic and financial leadership under the Government of President Susilo Bambang Yudhoyono and its formidable Minister of Finance and Acting Coordinating Minister for Economic Affairs, Sri Mulyani Indrawati.

If Western leaders could see local Indonesian data on banks and business applied to their own countries, with 2008 growth at 6.3 per cent, low non performing loans in the banking system (around 3 per cent ), US$60 billions cash of foreign reserves, US$10 billion invested abroad and US$60 billions of inward investment, then they would be over the moon. Current newspaper headlines in Indonesia point to plenty of good news in this giant archipelagic country, six hours across on a jumbo jet.

Seen from Jakarta, Indonesia, the ups and downs of Wall Street and Main Street in the United States are a long way away and London, Paris and Berlin are not much nearer. But the cold winds of the Western recession are affecting Indonesian export markets and having some negative impacts on the financial system and the real economy. However there is absolutely no chance of a national recession there.

Although many Southern countries will suffer a downturn most are unlikely to go into national recession, if the economic news in Indonesia is anything to go by. Local news headlines are about declining growth in some sectors and additional risks to be managed. But some companies are doing better because of the worldwide downturn and there is an opportunity to focus on strengthening the economic grass roots here while the West takes two years to recover.

Local front page financial news has been dominated by the stock market crash in the first week of August and the ensuing saga, like a trip-roaring novel on high finance and intrigue, of the renowned Indonesian conglomerate, the Bakrie Group. But Bakrieland is not Indonesia. It’s just a part of the picture but not central to the new fundamentals. Indonesia has a self-generating economy sustained 65 per cent by consumption, and a huge and growing number of SMEs, backed by a large +US$100 billion state budget, and a strengthening tax base.

The stock market crash of the Bakrie Group and its Herculean efforts to sell off a 35 per cent stake of the shares in the Bumi Resources coal company, said to be worth US$1.3 billion, but subject to plummeting share prices in the last month, attracted rival offers from Northstar Equity Partners, a US buyer lined up with local Indonesian State Owned Enterprises, versus an offer from San Miguel Corp, the largest food and beverage conglomerate in the Philippines, which also has heavy clout in Asean and global reach.

This story tended to dominate the Indonesian headlines and the trades on the Stock Exchange. But this will not determine the future of the Indonesian economy.What it tells us about fundamentals is of more importance. Indonesia has substantial resources including huge coal reserves. Indonesia needs US$100 billion of private investment over ten years, half of it for energy. If Indonesia is to continue to grow at between 5 and 6 per cent, or to push the growth rate up to 7 per cent after 2010, then what is needed is less focus on the adventures of a few politically connected oligarchic families who previously dominated the economy, along with the State Owned Enterprises, and more focus on strengthening SMEs in the decentralised provinces, right down to community level, to mobilise the coalition that can put Indonesia into the top ten economies in the world.

Pic from Jakarta Daily.

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