Indonesia A Silent Competitor

Indonesia is situated in the largest continent Asia in its south eastern region and consists of a large archipelago between the Indian Ocean and the Pacific Ocean, with more than whooping 13000 islands. Indonesia total land area measures 1.9 million square kilometres, which is eight times the area of United Kingdom. Apart from fertile land suitable for agriculture, Indonesia is rich in a range of natural resources, varying from petroleum, natural gas, and coal to metals such as tin, bauxite, nickel, copper, gold, and silver.

Indonesia is a nation which faced ups and downs and its economy was scattered. Despite facing the severe downturns of 1930s, 1970s and of 1997, Indonesian economy managed well to make a comeback.

The Indonesian economy is also rated high in the sovereigns rating list by the Standard and Poor’s which is the largest rating company in the world. The country got the following ratings:

• Local Currency Rating: BB+
• Foreign Currency Rating: BB+
• T&C Assessment: BBB-

Indonesia is the proud part of The Big Emerging Market (BEM) economies in the world and according to World Bank Report issued in May 2011, BRIC countries plus South Korea and Indonesia will lead the world’s economy with more than a half of all global growth by 2025.

Read on GWI Reasons why we think India will be the Best Performing BRIC Country in 2013.

Indonesia has come a Long way

• During the post Independence period of 1945 to 1960 Indonesia was regarded to be an excessively poor country. It was the changes in government in 1965 that triggered essential progress in lowering the country’s poverty rate. From a steep recession in 1965 with an 8% decline in GDP, the country began to develop economically in the 1970s. The development continued throughout the 1980s and into the 1990s despite the oil counter-shocks. GDP level rose at an average rate of 7.1% during the period and Indonesian economy saw consistent growth, with the official poverty rate falling from massive 60% to mere 15%. A one-fourth decline was regarded as quiet a decent development. Currently an estimated 13.33% of the population (2010 estimate) remains below the poverty line.
• The Asian financial crisis of 1997 shook the economy badly. One decade later, Indonesia moved out of crisis into a situation where in the country once again had sufficient financial resources to address its development needs. This change came as a result of prudent macroeconomic policies of which the very low budget deficits have been the most important. Also, the government pattern of spending money has been transformed by the 2001 ‘big bang’ decentralization, which has resulted in over one-third of all government spending being transferred to sub-national governments by 2006.
• Equally important was the decision of lowering subsidy in fuel. In 2005, spiraling international oil prices caused Indonesia’s domestic fuel subsidies to run out of control and threatened the country’s hard won macroeconomic stability. Despite the political risks driving inflation, government took the brave decision to slash fuel subsidies. The decision came out to be a boon as it helped in freeing up an extra US$10 billion for government spending on development programs.
• Also an additional US$5 billion had become available in the year 2006, all credit to the combination of increased revenues boosted by steady growth of the overall economy, and declining debt service payments, a hangover from the economic crisis. Thus in 2006 the government had an extra US$15 billion to spend on development programs. The country had never seen “fiscal space” of such magnitude since the revenue windfall experienced during the oil boom of the mid-1970s.
• The MSCI Emerging Markets Index showed a 2011 year-to-date performance of -20.6% versus a return of 16.4% return in 2010 but on the contrary The MSCI Indonesia Index was the single country index posting a positive year-to-date return of 3.74%. The MSCI Indonesia Index is designed to measure the performance of the   large and midcap segments of the Indonesian market. The MSCI Indonesia Index gave a return of 54.44% since 3years as compared to the MSCI Emerging Market Index return of 27.60% for the same period.

Given the level of decentralization that has occurred in Indonesia and the fiscal space now available, the Indonesian government has a unique opportunity to revamp the country’s neglected public services. Thus it is quite evident that the Indonesian economy is a silent competitor which very soon would become the talk of the town for the global village.