By Tim Ferguson
With even the spluttering from North Korea growing more muted, bird flu relatively isolated and General Musharraf’s troubles in Pakistan so far seen as comic, the world greatly turned away from Asia this week, to more attention-grabbing scenes. Yet, contributing to a a general global malaise were the slowing growth prospects in once-vibrant economies. China’s cooling off is foremost in that respect, though the more surprising pause may be coming in Indonesia.
Although officials in Jakarta in February acknowledged a recent softening, no less than Goldman Sachs last month continued to see growth in Southeast Asia’s pillar economy continuing to pick up to 6.5% by 2014. Many millions of Indonesians have more buying power these days, and that can add up to meaningful gains in the consumer sector and the service industry around it, including construction. By last November, the number of billionaires had reached 32, including Kuncoro Wibowo from PT Ace Hardware. It’s still possible to find oneself in circles where few discouraging words are heard about the archipelago nation’s prospects or its second-term president, SB Yudhoyono.
Circumstances and policy failures are beginning to catch up with Indonesia, however. As it remains a resources-driven economy, the drop in most commodity prices this year (from dimmed global prospects) will be felt acutely. This week the top executive of Astra International, the nation’s biggest conglomerate at $30 billion in revenues, told the Financial Times he was expecting a tough year. Even motorbike sales, an Astra business, are down 12% this year, although that has a lot to do with new down-payment strictures. (Astra’s terrific run to date is masked in Forbes’ corporate measures, such as the latest Global 2000 survey, because the company’s results are consolidated into those of 51% owner Jardine Matheson–no. 185 on our list.)
This year’s turn in the commodity luck is aggravated by Indonesia’s increasing bent for economic nationalism, which aims to keep resource development out of the hands of foreign firms. The same insular approach–apparently for domestic political gain–is also impinging on sorely needed infrastructure development. Billions of dollars of needed road, port, rail, power, water and airport projects are behind schedule, a familiar Indonesian story made worse by the turn inward on some high-visibility deals where global contracting could help. Add up the delays, and sure enough sales of cement are growing at the slowest rate in seven months, the Asia Sentinel website reported this week.
Perhaps related to the national mood, Indonesia’s current-account deficit is worsening and the rupiah currency continues to lose ground, even over the past year to the U.S. dollar. This is not what some other emerging economies have experienced.
Of course, President SBY can be counted on to say the right things and keep his international friends hopeful. Many still want to be part of what has been described (by me) as rising Asia’s third economic peg. The latest corporate monthly magazine from the Itochu trading company opens with this headline: “Indonesia–A Pro-Japanese Country Full of Smiling Faces.” Given history that is not too long past, that’s testimony to a welcoming land. No doubt, many abroad remain in thrall. But mutual goodwill alone is not going to be enough to get the Indonesians over the looming hump. The country needs more investment, more trade, more competition…and more action.