Indonesian President Joko Widodo is pushing to speed up infrastructure investment after pledging to build roads, railways and ports to support growth.
He is hampered by one of the weakest tax takes in the Association of Southeast Asian Nations and a fiscal deficit that is dangerously close to Indonesia’s ceiling of 3 per cent of gross domestic product.
Disappointing tax collection, exacerbated by weak commodity prices, has been a significant factor in the deterioration of Indonesia’s public finances. Infrastructure investment, meanwhile, has trailed economic expansion since the Asian financial crisis in 1997-98, resulting in expensive business disruption and high logistical costs. Read more
In a world where financial transactions and capital flows move in milliseconds, getting the right information about the state of a country’s economy is critically important. Unfortunately, the standard and still most reliable measure of the health of an economy, gross domestic product (GDP), has not kept up with the speed of financial markets. This puts emerging market countries at risk from financial gyrations, regardless of the underlying fundamentals of their economies.
Take for example Indonesia, one of the largest and most influential emerging market economies. Its GDP data is reported quarterly with about five weeks’ delay. This means that economic activity that takes place in January is not reported until the first week of May. While Indonesia is no outlier in its delay, it is still late for a real-time assessment of the strength of economic activity. Read more
Reform is a pressing need across emerging markets, especially as global demand remains weak and rising US interest rates threaten to increase funding costs. For countries to revive growth, they will need to create a more favourable environment for business. Politicians in many countries acknowledge this and have put structural economic reforms at the heart of their governing agenda.
But everywhere the outlook for reform is heavily dependent on political leadership and the larger political economy: where leadership and popular support for reform is strong – as in India – the outlook is positive; but where politicians are more interested in power than leadership – such as in Turkey and South Africa – the prospects for positive change are dim. Read more
By Jayant Rikhye, HSBC
To the list of emerging Asia’s economic powerhouses, add one more: South East Asia and its 625 million inhabitants.
Spanning countries as diverse as Vietnam, Indonesia, the Philippines and Singapore, the Association of South East Asian Nations (Asean) is often considered an “also-ran” that gets far less attention than China and India.
To underestimate the region, however, would be a mistake. Read more
By Ying Staton, Global Counsel
Jakarta is often called the world’s Twitter capital. Its digital citizens generate more tweets than any other city worldwide. Twitter has prioritised Indonesia as a key growth market and their executives take pride in quoting a McKinsey research paper that shows a 10 per cent increase in the number of internet users in a country leads to a 1 per cent rise in that country’s GDP growth.
But the relationship between social media buzz and economic prosperity is far from linear in Indonesia. The Indonesian digital phenomenon is the result of a several factors including demographics (about half the population is under 29), a robust climate of political debate and a culture in which ‘affiliative’ instincts – the desire to belong to a community rather than stand out from a crowd – are regarded as pronounced. Read more
Emerging Asia is set to be the world’s fastest-growing region again in 2015, skirting the contagion from Russia’s crisis and riding the fall-out from weak commodity prices, according to Fitch, the credit rating agency. Nevertheless, structural frailties stalk seven out of 10 countries in the region, with surging debt levels a particular concern, the agency said.
The region, excluding China, is expected to expand by 5.9 per cent in 2015 and 6.1 per cent in 2016 – compared to an average for global emerging markets of 4.1 per cent and 4.5 per cent respectively, Fitch said in a report. These forecasts compare with the International Monetary Fund’s (IMF) estimates that developing economies would this year grow at 4.3 per cent, accelerating to 4.7 per cent in 2016. Read more
In spite of Mikhail Gorbachev’s warning this month that the world is on the brink of a new Cold War, it is Asia that we should be worrying about, says former Australian Prime Minister Kevin Rudd. The region is home to seven flashpoints which, if they erupt, could end the greatest economic growth story of the 21st century.
“We face this remarkable set of circumstances where global growth will be driven from Asia,” Rudd told beyondbrics in a recent interview in Dubai.“But Asia from a political perspective is a potentially unstable region. So the world [should have] a deep interest in not just the future growth trajectory, but also the political and security circumstances which underpin that equation.” Read more
Indonesia’s new president Joko Widodo has kept his election promise to cut subsidies on fuel. He announced that prices will rise by some 30 per cent in order to tackle the government’s ballooning budget and current account deficits, fast FT reports.
Subsidised petrol will rise from Rp6,500 to Rp8,500 ($0.80) a litre while diesel will jump from Rp5,500 to Rp7,500 a litre. Read more
By Gustav F Papanek of Boston University
Indonesia has a once-in-a-century opportunity to reach economic growth of 10 per cent and give 20m families regular jobs with a steady income. This opportunity is the result of increasing costs of production in China, the world’s leading exporter of labour-intensive manufactured goods. Over the next five years other countries will take a share of China’s export markets for these goods. Indonesia could benefit from this reallocation of industrial capacity because of its large and rapidly growing labour force. Two million workers join the labour force every year but under current policies, only half of them will find stable, formal sector jobs. Indonesia already has millions of “surplus” labourers, currently working in low productivity jobs in agriculture and the informal sector. Moving these workers into productive jobs in manufacturing would double their income, increase exports and raise economic growth to a record 10 per cent. Read more
By Maarten-Jan Bakkum, ING Investment Management
Few emerging economies have been under so much pressure lately as Indonesia. Since 2011, the terms of trade of the country have deteriorated sharply. This came as a result of the Chinese slowdown and the drop in coal, palm oil and rubber prices. After having enjoyed ten years of rising commodity prices, the Indonesian economy is now suffering from price declines of its main export products.
This has pushed local incomes down, with a negative impact on consumption and bank deposit growth. And it has led to a sharp correction in fixed investment growth, because of uncertain commodity demand and tighter financial conditions, partly linked to the widening current account deficit. Read more
Scientists are looking to a tiny variety of killer wasp to spare Indonesia from the ravages of a bug that is threatening the key cassava crop in south-east Asia’s biggest economy.
Since it arrived in Indonesia in 2010, the cassava mealybug – a small white insect that feeds on plants – had spread to the country’s main growing regions for cassava, which is a staple for tens of millions of people and generates around $1bn a year from industrial production. Read more
Japanese fast food lovers: Indonesian yakitori and chicken nuggets may be coming to a table near you soon as Southeast Asia’s biggest economy tries to take advantage of China’s latest food safety woes.
McDonald’s Japan stopped importing Chinese chicken in July, part of a broader backlash after a major Chinese supplier was accused of selling meat beyond its shelf-life. Read more
Few, if any, Indonesians have heard of Gerald Ratner, the former British jewellery chain executive who became notorious for joking that his company’s products were “total crap” and then seeing sales nosedive.
But, in Ignasius Jonan, the head of the state-owned national rail company, Kereta Api Indonesia, they seem to have their own version of Ratner.
When asked why the trains are so crowded, he has a simple answer: you get what you pay for. Read more
Investors have piled into Indonesia’s $1.5bn worth of Islamic bonds, making bids for over six times that amount. So is the strong demand for the sukuk another sign that Indonesia’s economy is becoming less fragile?
The 10-year sukuk, rated Baa3 by Moody’s, was marketed at the country’s lowest yield since 2012 on optimism over the incoming administration of president-elect Joko Widodo. Strong demand – order books were worth $10bn – pushed down the yield, which started at around 4.65 on Monday before being reduced to 4.35 per cent. Read more
Of all the colonial legacies left by Britain, France and the Netherlands in Asia, one of the least talked-about – yet arguably one of the most lasting and problematic – is the patchwork of legal systems that divides the region.
Doing business in the Association of Southeast Asian Nations (Asean) is gradually getting easier thanks to the elimination of tariff barriers, expansion of supply chains and gradual harmonisation of customs procedures.
Yet one of the big “soft” barriers to greater Asean integration, and one which makes life hard for multinationals and ambitious local companies alike, are the differing jurisdictions across the 10-member bloc. Read more
“When eating an elephant, take one bite at a time”, US Army officer and Vietnam veteran Creighton Abrams once said.
In his new book, The Rise of the New East, Ben Simpfendorfer does just that. His elephant is “The East”, the group of almost 50 emerging markets ranging from Turkey to China that is home to well over half of the world population.
Simpfendorfer gives his topic a thorough treatment. While his insights seem logical and intuitive, taken together they give an impressive oversight of into key trends shaping the region. beyondbrics noted five insights that particularly stood out. Read more
All eyes are on the official vote counting process in Indonesia after Joko Widodo, the reformist Jakarta governor, and Prabowo Subianto, a self-styled military strongman, both claimed victory in Wednesday’s milestone presidential election.
Most “quick counts” – based on samples of actual votes cast – predicted a victory for Widodo by a margin of 4 to 5 percentage points. But Subianto has refused to concede, with his brother insisting that their own counts put him in the lead by a margin of nearly 4 percentage points. Read more
It is a truth almost universally recognised that internet penetration in the 10-member bloc known as Asean – the Association of Southeast Asian Nations – is low, even though the region is humming economically.
Or is it?
UBS has come out with some interesting research that will give the e-commerce crowd something to cheer. The bank finds that Asean has a 32 per cent “internet penetration rate”, or almost 200m users, out of a total population of 620m.
This contrasts with market data apparently widely accepted – and cited by UBS – saying that penetration could be as low as 62m users. Read more
Tough-talking former general Prabowo Subianto has put nationalist rhetoric at the heart of his powerful presidential campaign.
But one of his communication advisers is Rob Allyn, an American political consultant has who worked for George W. Bush and Mexico’s Vicente Fox among many others.
Supporters of Subianto’s rival Joko Widodo, the Jakarta governor, have claimed that Allyn is linked to a widely circulated smear campaign that has falsely accused him of being a Communist, ethnically Chinese and not a Muslim. Read more