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Indonesia: Time to put another ā€˜Iā€™ in BRIC?

Updated On: Jul 13, 2009

 

On the heels of President Susilo Bambang Yudhoyono’s likely win in the presidential elections comes the announcement of Indonesia ambitions to enter the BRIC group of fast-growing economics in the world – Brazil, Russia, India and China.

“Our target is to put another ‘I’ into BRIC,” said Emil Salim, a presidential adviser and former cabinet minister. “Achieving that in five years is possible.”

Whether BRIC will become BRICI anytime soon is yet to be seen. But the fact is that Indonesia has maneuvered through the economic crisis with a deftness unmatched elsewhere in the region, and indeed, in the world.

While other economies are reeling from the global recession, Indonesia is the third-fastest growing economy in the region, behind India and China. In dollar terms, Jakarta's main stock index is up more than 72 percent since March, and up 67 percent year-to-date.

Just 10 years ago, Indonesia was the major victim of a debilitating banking crisis and was embroiled in a revolution that saw four presidents in four years.

Yudhoyono’s reformist agenda is often credited with this turn in fortune.

The strength of the country’s domestic markets is a key factor that carried it through the worst of the crisis. When the world’s economies collapsed and international investors pulled out of Asia late last year, Indonesia did not go into a tailspin — unlike, say, Singapore, which is almost wholly dependent on foreign investment.

Foreign direct investment accounts for only about 25 percent of gross domestic product here. And so it's the country’s 240 million consumers who are driving the economy.

However, tangible issues  will have to be resolved before Indonesia can claim BRIC status.

Yudhoyono will have to rein in the volatility of the rupiah to reduce foreign-currency risk. The rupiah is projected to have the biggest one-year price fluctuation among Asia’s 10 most-traded currencies. Twelve-month implied volatility, a measure of expected swings used when pricing options contracts, is 21 percent, compared with 16 percent for the South Korean won.

Other issues that face Indonesia’s economy include poor infrastructure, with Indonesia placing 86th out of 133 economies in terms of infrastructure quality in the World Economic Forum’s 2008 Global Competitive Index, and endemic poverty.

Source:

Bloomberg, Indonesia May Be ‘Superstar’ as Yudhoyono Wins Vote (Update2) , 9 July 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFNLgbILj_Kw

Bloomberg, Indonesia, Vying to Enter BRIC, Has Star Role in ‘Chindonesia’ , 11 July 2009, http://www.bloomberg.com/apps/news?pid=20601080&sid=aQN6xO_LfM4Y


Global Post, Will Indonesia make it BRICI?, 7 July 2009, http://www.globalpost.com/dispatch/indonesia/090701/indonesia-economy  







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