By Tom Colebath, Economics Editor, The Age Daily, Australia

Our next door neighbour is booming politically and economically.

THIS year, most of the world’s economic growth will take place in China. Much of the rest will be in India. But the third biggest source of global growth will be right next door: Indonesia.

It has just held free elections for president and legislature that gave an emphatic mandate to its modernising moderate leader, Susilo Bambang Yudhoyono, for a second five-year term. The army no longer rules. The economy is no longer broken. Indonesia, for so long under the heel of dictators, is now what one analyst calls ”the best functioning democracy in South-East Asia”.

A decade ago president B. J. Habibie unexpectedly ended the dictatorship to allow free speech, a free press, independent courts and free elections. While China, Singapore and Malaysia remain in the grip of ruling elites that won’t let power out of their grasp, Indonesia has become a country where people can say what they like without having to check who’s listening.

And as the global financial crisis has flattened most countries, Indonesia has flourished. In this decade, its economy has grown by almost two-thirds. More Indonesians now live in cities than on farms. Per capita incomes have risen almost 25 per cent in five years, almost 50 per cent in a decade. Even on the IMF’s forecasts – seen in Jakarta as unrealistically low – its economy would grow 15 per cent over the three years of this global recession. Only China and India will do better.

Indonesia never will be a giant on the scale of China and India. Indonesia has 230 million people; they each have well over a billion. But it is moving along very different lines from China. Last year, analysts Andrew MacIntyre and Douglas Ramage published an essay for the Australian Strategic Policy Institute titled provocatively Seeing Indonesia as a normal country. Their thesis was that Indonesia is developing into a middle-income, stable democracy that poses no threat to its neighbours, and solves issues by peaceful, democratic means. At the time I thought their title provocative; a year and two elections later, it looks prescient.

There are now 15,000 Indonesians studying in Australia. In the year to June, a record 436,000 Australian tourists went to Indonesia, despite the official warning urging them to reconsider.

The commercial relationship, however, could be much bigger. Indonesia still has a widespread hostility to foreign investment, which Yudhoyono’s reforms have not challenged. Yet Australian companies in Indonesia – such as the ANZ, Toll and Thiess – are doing well, and there is the potential for Australia to help modernise Indonesian business as it is helping to modernise government.

Indonesia’s democratic revolution has put down deep roots. Its economic revolution is starting to do the same. Much depends on Yudhoyono’s second term, and how it tackles corruption and reforms to the bureaucracy, the labour market, infrastructure and investment. What will be good for Indonesia will be good for us.

Quoted from The Age Daily, Australia.

Popularity: 3% [?]