Indonesia has a larger population than two of the four Bric nations, Brazil and Russia, and of course, it has a remarkably youthful population also, with demographic dynamics that give its growth potential a lot of hope in the next couple of decades.
These basic attractions are partly what led me to thinking of the notion of an additional group of emerging economies to focus on: the so-called Mint countries; Mexico, Indonesia, Nigeria and Turkey. Each of these has the potential to be a significant part of the world economy if not quite as important as the Bric economies. I define a Bric in a global context these days, as an emerging economy that if not already 3% of global GDP or more, one that has that clear potential in the next decade or two. For the Mint economies, I think of them as emerging economies that either are, or have the potential to be somewhere between 1%–2% of global GDP.
At somewhere below $1tr in nominal GDP Indonesia is currently around 1.5% of global GDP, and it does have the potential if it used its young people productively to rise notably, and of the Mint countries, perhaps the best chance of becoming as large in the future as one of the Bric countries, although it will be difficult to achieve that. India and Russia are currently twice the size of Indonesia, Brazil 2.5 times and of course, China more than nine times bigger.
Writing at the end of the first quarter of 2014, and more than four months since I finished travelling around each of the Mint countries, I find it quite interesting to reflect back. Looking at financial markets, Indonesia has been one of the star performers of 2014 to date, with the stock market up by around 13% in the first quarter and the rupiah having risen against the dollar, which makes a mockery of the notion that emerging markets were out of fashion. Indonesia has been one of the absolute best places to have been invested in Q1. I would not have guessed this four to five months ago to be frank as travelling through Jakarta didn’t give me as much “wow” factor as I came across from my travels elsewhere.
While the demographic dividend is clearly there to be seen, many of the nation’s challenges are just as evident including the remarkable amount of time lost to being stuck in traffic in Jakarta. The need for an effective public transport system, especially a metro, is urgent and one hopes that the current one will be delivered. Without considerable improvements in Jakarta’s — and probably much of the rest of the country’s infrastructure — Indonesia’s growth potential will not be realised.
Another factor I struggled with repeatedly in Indonesia is when I asked: “What is the country’s edge?” Yes it has a lot of young people, and yes, it is a big commodity producer. But these two things are not a guarantee of success, in fact on the contrary in many cases, as being so blessed with commodities can often make a country’s policymakers lazy and prone to degrees of corruption that hold it back. Where is Indonesia’s Samsung? What is its alternative going to be? It was illustrative that despite what seemed to be millions of scooters travelling around the clogged roads, none of the scooter manufacturers were Indonesian companies.
Against these rather basic and considerable challenges — throw in education and reduction of corruption too — let me turn to more positives. I was and remain quite positive about Indonesia’s macroeconomic policy management. In the late spring of last year, Indonesia had been grouped with four others to be dubbed a member of the “Fragile Five” a group of countries with sizeable and rising current account deficits that made them vulnerable to a more restrictive US monetary policy. In contrast to the others, Indonesian policymakers acknowledged their vulnerability and opted to slow domestic demand to reduce their current account deficit, something that has worked rather well, and perhaps is why the Indonesian markets have performed relatively well. I don’t think Indonesia deserves to be part of such a club, and its framework for macro policy is strong.
Indonesians face an election soon and will choose a new leader. Jakarta Governor “Jokowi” as he is widely known has been sanctioned to be a candidate and is currently the favourite, probably an additional reason for the stock market’s strength. I am amongst those that suspect his national leadership would give a chance for bolder micro-economic reforms that added to the macro framework and allow the hope of 6%–7% economic growth persisting as some of the deeper challenges involving corruption, infrastructure development and so on would be given more serious attention. If this happens, I look forward to Indonesians once again challenging me on when the additional I in Bric will be added!
Jim O’Neill is Visiting Research Fellow to BRUEGEL and Economic Advisor to the International Finance Corporation