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Indonesia economy on track but faces hurdles
 
 
 

JAKARTA  - Indonesia’s designs on joining the top table of global economies have been boosted by its upgrade to investment status, but corruption and a poor infrastructure are hurdles to full membership.
Southeast Asia’s biggest economy has made huge strides since the dark days of 1997, when its bond rating was reduced to junk during the Asian financial crisis and foreign investors fled the country.
Wednesday’s decision by Moody’s to upgrade Jakarta from Ba1 to Baa3 with a stable outlook — following a similar move by Fitch last month — boosted its claim to join the league of emerging “BRICS” economies of Brazil, Russia, India, China and South Africa.
The rating upgrades “affirm worldwide recognition of Indonesia as an investment-worthy country,” said Darmin Nasution, governor of Bank Indonesia, the country’s central bank. “It gives confidence that, even if there were financial turbulence in the world, Indonesia would be able to contain it and we will not be affected too much by it.”
Jakarta has been quick to turn the ratings reviews into cash. This month, soon after the Fitch upgrade, it sold its first 30-year global bonds since 2008, saying the sale had raised $1.75 billion.
The day after the Moody’s upgrade, trade minister Gita Wirjawan had more good news, announcing that foreign direct investment last year had hit a record $20 billion, with Singapore, Japan and the United States among top investors.
Wirjawan told reporters the economy had the potential to grow to $9.3 trillion by 2030.
And Britain’s Standard Chartered bank agreed, tipping a similar figure in the same timeframe, representing a more than tenfold increase from the country’s current output.
The bank also tipped Indonesia to become the world’s sixth-largest economy after China, the US, India, Brazil and Japan in the next 20 years, putting it in front of Germany, Mexico, France and Britain. It noted that the vast archipelago of 240 million people is already a member of the G20 club of rich countries and major emerging economies. However, the outlook is not entirely bright.
Standard Chartered also said the country was handicapped by infrastructure bottlenecks and corruption. Indonesia came 100th in a list of 183 countries — with 183 being the worst — in a Transparency International index last year.
President Susilo Bambang Yudhoyono has won two elections, the first in 2004, on a graft-fighting platform but few now believe he has what it takes to tackle the nefarious forces that control the country’s judiciary.
Despite being an economic miracle, Indonesia is mired in red tape and corruption while its ports, roads and airports are hopelessly inadequate for the pace of growth it hopes to sustain in coming years, according to investors and analysts.
“The absence of sound infrastructure has been the main hurdle for Indonesia to implement its key economic policies,” the Jakarta Globe daily wrote on Friday. Indonesian truck drivers have been known to get locked in massive traffic jams, sometimes for more than a week and forced to sell their belongings such as mobile phones to buy food.
The government in 2010 announced plans to spend $140 billion on infrastructure until 2014, more than half of which would have to come from the private sector.
However, at a time when much of the world is trying to steer out of economic doldrums Indonesia, whose economy all but fell apart during the Asian financial crisis, has escaped relatively unaffected by the current global slowdown.
Gross domestic product growth last year was estimated to have reached 6.5 percent while this year’s official target is 6.7 percent.
Although foreign investment will underpin future growth, domestic consumer demand accounts for more than half of GDP, making the economy less dependent on exports and less vulnerable to shocks from Europe or the United States.
Consumer goods are in hot demand in Southeast Asia’s largest market for various goods from smartphones to cars, where the middle class has been swelling in tandem with the economy.
Helmi Arman, Citibank’s chief economist in Jakarta, said: “In terms of ‘surpassing’ the European countries it would be better if it (Indonesia) is not only viewed from the size of the economy, but also from income distribution and productivity.
“We still have a lot of homework to do in this regard.”

 
 
on epaper page 16
 
 
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