Sign up | Log in
Subscribe to AseanAffairs Magazine
View Samples
AseanAffairs Magazine September - October 2010

Thai Prime Minister
Abhisit Vejjajiva

Four months on in the reconciliation process Asean Affairs examines the progress and shortcomings of Prime Minister Abhisit Vejjajiva’s plan to bridge

COVER STORY 

Testimonials – What our Readers are saying about us
Read the full story.  Subscribe now!





    Indonesia is on the threshold of becoming Asia’s next trillion dollar economy in 2015 and will be an increasingly important force driving forward the economic development of the ASEAN region.


A view of a Yamaha assembly line in Indonesia

In Peter Weir’s film “The Year of Living Dangerously”, about Indonesia under President Sukarno on the eve of the attempted PKI (Communist Party of Indonesia) coup in 1965, one of the most haunting moments is when the photographer Billy Kwan hangs a banner from a hotel window which reads “Sukarno feed your people”, before being thrown to his death by the security police. The film, made in 1982, was banned in Indonesia until 1999 and first broadcast on Indonesian TV only in 2004.

Sukarno’s Indonesia in 1965 was one of the poorest countries in the world. In the last 45 years, the nation has made substantial progress in poverty reduction, with the estimated share of the population living below the national poverty line having declined from more than 60 percent of the population in 1965 to an estimated 13 percent of the population by 2010. Indonesia’s average GDP per head has now reached US$3,000, with a youthful demographic profile and the rapidly growing urban consumer market supporting the long-term growth potential for the economy.

With a population of 240 million and annual GDP for 2010 estimated at US$700 billion, Indonesia is currently much vaunted amongst global institutional investors and financial markets analysts as the next prospective economy that may join the BRIC club of emerging market economic giants (Brazil, Russia, India and China). By 2015, Indonesia will be on the threshold of becoming Asia’s next trillion dollar economy, becoming an increasingly important force that will drive forward the economic development of the ASEAN region.

The major international credit rating agencies have also been gradually upgrading Indonesia’s sovereign credit rating, and there are growing expectations that Indonesia could achieve an investment grade credit rating in the next couple of years if the economy maintains its stable growth path.

This significant international reassessment of Indonesia’s long-term economic and investment outlook reflects its strong macroeconomic performance during President Yudhoyono’s first term of office and, most notably, the resilience that the Indonesian economy demonstrated

during the global financial crisis in 2008-09. The Indonesian economy is forecast to grow at a pace of around 6 percent in 2010, with a similar growth rate of around 6 percent per year projected over the medium- term from 2011-2014.

Resilience Through the Global Crisis

Athletic shoes receive their laces in Indonesia.

However, at the peak of the global crisis in late 2008 just after the Lehman collapse, when world financial markets were in meltdown, Indonesia was perceived by international investors to be one of the Asian emerging markets most at risk. There were widespread fears that Indonesia had significant external account vulnerabilities, with relatively low foreign exchange reserves and facing risks of speculative capital flight. Indeed, both Indonesian Emerging Market Bond Index (EMBI) spreads and credit default swap (CDS) spreads spiked temporarily above 1,200 basis points, which were over 1,000 basis points higher than pre-crisis levels.

Indonesia emerged through this baptism of fire with flying colours, with the economy turning in one of the strongest economic growth performances worldwide in 2009. The positive growth outturn of 4.6 per cent in 2009 was a very impressive outcome in a year that marked the worst global recession since World War Two, with the economies of the U.S., Japan and much of Europe contracting. Indonesia also fared far better than many export-dependent East Asian tigers, including Singapore, Malaysia, Thailand, Taiwan and Hong Kong, all of which recorded negative growth rates.

The government also demonstrated its macroeconomic management skills by arranging several major international financing deals to reduce its external account vulnerabilities, including a US$5.5 billion contingent financing facility that included a US$2 billion standby loan from the World Bank, while a further US$3 billion was raised through an international sovereign bond issue on global capital markets in early 2009. It was this resilience and skilful economic management by the Indonesian government’s economic frontbench that convinced financial markets that something had fundamentally changed compared to a decade ago, when the country had experienced extremes of political and economic turmoil during the East Asian economic crisis in 1997-98.

By early August 2010, CDS spreads for Indonesia had narrowed to just 150 basis points, compared with the late 2008 global crisis peak of over 1,200 basis points. The Indonesian stock market has also surged during 2010 to date, as investor appetite for Indonesian assets has increased sharply. The Jakarta Composite Index is up over 20 per cent in the calendar year to date, outperforming most other major Asia-Pacific equity indexes this year by a substantial margin.

Indeed, since the dark days of 1997-98, Indonesia’s macroeconomic scorecard has improved decisively. At a time when many OECD countries are grappling with very large fiscal deficits and mounting government debt burdens that have even raised fears of sovereign debt crises in Europe, Indonesia’s government debt to GDP ratio is below 30 per cent today, having declined from levels of close to 100 per cent of GDP in 2000. Furthermore, the government has kept a tight rein on budget deficits, with the 2009 government deficit better than planned, at -1.5% of GDP, and a similar modest fiscal deficit expected in 2010...............

>>Indonesia is currently much vaunted amongst global institutional investors and financial markets analysts as the next prospective economy that may join the BRIC club of emerging market economic giants (Brazil, Russia, India and China).<<



<< Previous      Page 2 of 2 

Back to Top Read the Complete Article Subscribe to ASEANAFFAIRS Magazine

Home | About Us | Contact Us | Special | Features | News | Magazine | Events | TV | Press Release | Advertise With us

Our Products | Work with us | Terms of Use | Site Map | Privacy Policy | Refund Policy | Shipping/Delivery Policy

Version 5.0


Copyright © 2007-2011 TIME INTERNATIONAL MANAGEMENT ENTERPRISES CO., LTD. All rights reserved.
Bangkok, Thailand