Monday, September 14, 2009

Indonesia’s economy looking good

Original source: The National UAE

Yulia Astuti runs a chain of beauty salons in Jakarta that cater especially for Muslims, and in most of her branches, women are flocking in for a makeover.

“I haven’t made any special research on how the economy is specifically affecting our business, but based on the facts, business has grown and the turnover in most of our outlets is getting bigger,” Ms Astuti said.

Indonesia’s strong domestic market has put it in a good position to deal with the global downturn, as shown by the growing clientele at Ms Astuti’s salons.

Indonesia is the fourth most-populous nation in the world, with 226 million people, and about 85 per cent of the population follows Islam, making it the world’s most-populous Muslim country.

Fauzi Ichsan, a senior economist at Standard Chartered Bank in Jakarta, said the strength of Indonesia’s domestic market had done much to help it weather the recessionary storm.

The importance of the domestic market was recognised by Susilo Bambang Yudhoyono, the president of Indonesia, in a speech last month. “In future, we must strengthen our domestic economy, our domestic market and not just depend on strong exports as the source of our economic development,” he said.

“Because of this, an export-oriented economic strategy is clearly not our choice.”

Mr Yudhoyono, 59, won a landslide victory in July and starts a new term in office in October. He is a popular leader and his reformist credentials have done much to boost Indonesia’s standing internationally. However, corruption, widespread poverty and a reputation for red tape means it has not benefited from inward investment in the way that countries such as China and India have done.

Indonesia is a big exporter of commodities such as rubber, nickel, coal and gas, but only about 30 per cent of its GDP is based on exports, much less than neighbours such as Thailand and Malaysia, which have suffered more from the global crisis.

The government predicts growth of about 4 per cent this year, making it one of the best-performing economies in the region. The rupiah is Asia’s best-performing currency this year, and the stock market is also rallying strongly despite the global downturn.

“Improving the infrastructure is a major challenge for Indonesia, and accelerated infrastructure development will also boost economic growth,” Mr Ichsan said.

However, it is not just a question of turning cash into roads in central Java. Upgrading the country’s poor infrastructure network is a problem because of the huge size of the Indonesia archipelago. Many of the regions are strongly autonomous, with knotty layers of bureaucracy, which means planners have to get through a huge number of central and local government agencies.

New anti-corruption rules means that many bureaucrats are worried about getting involved in public projects in case they are accused of dipping into the funds.

On top of this, Indonesia has some of the toughest labour laws in the region, and buying up land for infrastructure projects is a fraught process.

The economy has managed to stay on course despite incidents that could have badly dented sentiment, particularly the near-simultaneous suicide bombings on Jakarta’s JW Marriott and Ritz-Carlton hotels, which killed nine people and wounded 53 in July. The bombings came after four years of relative calm in Indonesia.

“There is no reason why Jakarta’s reputation internationally should suffer. After all, people still go to New York, London and Madrid after al Qa’eda struck there,” Mr Ichsan said.