Wednesday, September 26, 2012

The next big thing for Aussie trade is right next door in Indonesia

AUSTRALIA is handily located next to the next big thing in the global economy.
Not that many people here know it.

Even within Indonesia, most people are still seeing problems rather than opportunities.
For, like other large countries, Indonesia tends to look inwards and not out.

Muhamad Chatib Basri has a different perspective, however.

He is the chairman of Indonesia's Investment Co-ordinating Board, responsible for fostering a pipeline of investment to keep the country's economy growing at more than 6 per cent - as it has done for the past half-dozen years except for a slight GFC dip in 2009.

He believes that as China continues to slow, Indonesia, with its 240 million population, will take over as the leading high-growth major country.

He says massive structural change that took decades elsewhere in Asia was compressed in Indonesia into a year or two - the shifts from authoritarianism to democracy, and to decentralisation.

"We've been through the worst," he says. "Politically it's noisy, but not a threat" to economic development. The budget, for instance, has been effectively managed to being either balanced or in deficit but below 2 per cent of gross domestic product.

In bedding down these changes, though, Indonesia did not consider regional models adequately.
"We think we're the only country in the universe."

Now, he says, Indonesia needs to step up in its thinking to match its growing responsibilities and its economy.

There are three great hubs in Asia, he says: Greater China, into which he would place, controversially, Japan as well as South Korea; Greater India; and Greater Indonesia, the natural hub of Southeast Asia, with which Australia's trade is worth about the same as that with China.

Basri, who gained a master's degree and a doctorate at the Australian National University, told an Asialink/ANZ private briefing that Japan had the chief economic benefits of a baby boom in the late 1960s, South Korea 20 years later and now Indonesia was enjoying one.

The average age of a productive worker in Indonesia is 28. So the boom still has some way to go -- as long as the politics remains stable, and as long as greedy leaders and badly informed voters don't start insisting on redistributing and spending the benefits before the age of prosperity is truly bedded down.

Indonesia, like Australia, depends heavily on its resources sector, which remains the biggest magnet for foreign investors.

This creates problems as well as opportunities since, as Basri says, "One of our problems is governance." He says if Jakarta can't manage this the boom will be transformed into the resource curse that has blighted economies in other developing countries.

The uncertainty faced by the industry places a further burden on the economy.

Basri says the global scene is not promising.

But "we are the best among the worst, the least unattractive country" for investment in a slowing world.

And investors, he admits, are "professional complainers, so we have to indulge their hobby" by listening and helping.

The external situation -- which, as he says, Indonesians too often disregard -- is thus becoming one of its strong suits. How then to reinforce this by building on the pull factor attracting investors by dint of Indonesian economic virtue?

A long list of reforms remain on the table. "Typically," Basri says, "the cost is immediate but the benefits are medium to long term. Politicians are reluctant to spend their capital on reform when the return might be reaped by another administration.

"So we who want reform have to choose our battles."

The key battleground in Indonesia is in local government, he says. His answer is to highlight those that treat investors properly and are attracting jobs and thus prosperity.

But government investment is not an answer. "Governments are very bad at picking winners, but losers are very good at picking governments" to sponsor them.

by: Rowan Callick  From: The Australian

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