May 4, 2008


Indonesia's Road to Growth: The nation's economy is strong, but the government must continue to watch for corruption, and infrastructure must improve in order to reach growth targets (Rupert Walker, 5/02/08, Business Week)

Prakriti Sofat, Indonesia economist at HSBC, writes that "the Indonesian economy is enjoying its strongest and most sustained period of growth since before the dark days of the Asian crisis a decade ago". Nor does he anticipate much that could go badly wrong. Domestic demand has been boosted by interest rate cuts of 475bp since May 2006 and an expansionary budget earlier this year, which raised public sector wages and development spending. Foreign direct investment reached a record $10.3 billion in 2007, up from $6 billion in the previous year.

Indonesia's trade exposure to the US is among the lowest of Asian countries, and the current account surplus in the final quarter of last year was a healthy 2.9% of GDP. [...]

President Yudhoyono is seen as clean but not tough or decisive enough by the population. He has powerful rivals both outside the government in Megawati Soekarnoputri, leader of Indonesian Democratic Party-Struggle (PDI-P), and within, as his vice president, Jusuf Kalla, leads the majority Golkar Party. Mulyani Indrawati, minister of finance and Mari Pangestu, minister of trade, are both widely respected for their integrity, skills and energetic attempts to push through reform and drive the economy forward.

The democratisation process that has evolved since the removal of former president Suharto in May 1998 is unlikely to be reversed. "The process has moved forward irreversibly," says a Jakarta-based political commentator. But there are growing pains: regions and sub-regions insist on more local autonomy and money politics is an entrenched feature. And as the commentator adds, "the current generation of legislators are stuck in the past; but the younger generation will be better and have a greater understanding of accountability".

...along with India and Brazil.

Posted by Orrin Judd at May 4, 2008 8:10 AM
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