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May 01, 2012

Indonesia's Future GDP Growth Appears on Track with Management by Western Educated Technocrats

Bloomberg - “Indonesia is being driven by this huge consumption engine,” says Pong Ho Yin, a Hong Kong-based fund manager at Allianz Global Investors, which oversees 279 billion euros ($370 billion) worldwide. “The opportunity that is coming from this phenomenon is going to be enormous.”

In the last quarter of 2011, Indonesia’s GDP growth, while lagging China’s 8.9 percent, exceeded India’s 6.1 percent, Russia’s 4.8 percent and Brazil’s 1.4 percent, according to data compiled by Bloomberg.

In the future, Indonesia, with a median population age of 27, may reach a growth rate of 8 percent, Pong says. China’s one-child policy has left behind an aging workforce.

From 1999 through the end of 2011, Indonesia’s annual growth surged from zero to 6.5 percent, swelling the number of middle-class consumers by 50 million to more than 130 million, according to the World Bank.

During the same period, the average wealth per adult jumped fivefold to more than $12,000, Credit Suisse Group AG reported in October.

While some other fast-developing countries such as China struggle to switch from an export-led to a consumption-based growth model, Indonesia is ahead of the game: Consumer spending accounted for 55 percent of gross domestic product in 2011; the comparable figure for China in 2010 was 35 percent.

If Indonesia is able to keep high 6-8% annual GDP growth going for 20 years, they could become the fifth largest economy around 2030. Indonesia could conceivably get to fourth behind only the United States, China and India.




Western-Educated Technocrats

From 1998 to 2004, three more presidents came and went before the election of Susilo Bambang Yudhoyono, who was returned for a second, and final, five-year term in 2009.

When Yudhoyono, 62, a retired general who underwent some military training in the U.S., came to power, he sprinkled his administration with Western-educated technocrats such as Boediono, who ran the central bank before becoming vice president.

Yudhoyono pledged to attract more investment by cutting interest rates, fighting endemic corruption, raising living standards and fixing crumbling roads and power stations.

While much of that manifesto remains a work in progress, he’s delivered political stability and a fourfold increase in foreign direct investment.

Yudhoyono also declared war on Islamic militants; his forces arrested or killed scores of suspected terrorists, including the masterminds of the 2002 bombings on the resort island of Bali in which 202 people died.

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