Thursday, September 10, 2009

Not everybody likes "another BRIC in the wall"

Taken from: Nine MSN Money ; Primary source:

Asia's Emerging Powerhouse, Chindonesia: Enter the Komodo! and Adding Another 'I' to the BRIC Story? These are the titles of three recent reports by Standard Chartered Bank, the securities house CLSA, and Morgan Stanley investment bank respectively, reflecting their upbeat views of the world's fourth most populous nation.

Prosperous times: Markets bustle as Jakarta prepares for festivities. Economic growth is healthy but problems remain Preceding these was a policy brief by the Organisation for Economic Co-operation and Development arguing that the Bric group of rapidly growing developing nations – Brazil, Russia, India and China – should be expanded to the Briics, with the addition of Indonesia and South Africa.

Indonesia, home to the Komodo dragon, certainly warrants close attention. Economic growth in the first half of 2009 was 4.2 per cent, down from 6.1 per cent last year but still way ahead of most of its rivals. Its stock market has risen 84 per cent this year in US dollar terms – the world's second-best performer.

However, some analysts caution against getting carried away by Komodo power. Indonesia has made little progress against reducing poverty in recent years, its infrastructure is crumbling and its legal system is still very weak.

While gross domestic product per capita at $2,250 is more than double that of India, it lags well behind Russia, Brazil and China, and is a pittance against the $39,000 (€27,000, £24,000) for neighbouring Singapore.

Yet even if economic expansion in the first half of 2009 was below the rate needed to generate sufficient jobs to keep up with population increase, such a growth rate is the envy of neighbours such as Singapore, which have been contracting this year.

South-east Asia's largest economy has also survived the global financial crisis so well that many researchers think the world should be paying much closer attention to the sprawling archipelago.

Morgan Stanley is predicting 6 to 7 per cent annual growth from 2011 onwards and Standard Chartered is almost as bullish.

Government debt is down to about 30 per cent of gross domestic product from more than 100 per cent a decade ago. The World Bank named Indonesia as east Asia's leading reformer of business regulations this year. And the rupiah has almost recovered after a 30 per cent slump last year.

Most crucially, many of Indonesia's 228m people are still spending. Domestic demand accounts for almost two-thirds of the country's $520bn economy, and demand for its main commodities – thermal coal and palm oil – remains robust.

Bill Wallace, the World Bank's chief economist, says that in the past, "perceptions lagged reality", and so there is a "pretty reasonable argument for taking Indonesia much more seriously".

Nick Cashmore, head of CLSA in Jakarta, who coined the term "Chindonesia" to cover China, India and Indonesia, says: "Indonesia is growing as fast as it is in spite of the government not because of it."

The implementation of policies is often hindered by poor co-ordination among branches of government, slow budget execution (by mid-August only 49 per cent of the 2009 budget had been spent), the growing power of the regions and the weak legal system.

The failure to upgrade Indonesia's crumbling infrastructure is considered the main manifestation of this. Mr Yudhoyono promised myriad projects to boost power generation, extend toll roads and build ports, but only a fraction of these have been realised.

Some analysts think the problems run deeper. "I still don't think Indonesia is a country on the go," says one western diplomat. "In a sense of having a direction on how you pull people out of poverty, I don't see it in the same category as the rest of the Brics."