We are constantly hearing about the long-term potential of Brazil, Russia, India and China (the Brics). We may soon be able to add Indonesia to this list, says Morgan Stanley’s Chetan Ahya.
A “confluence of benign factors” suggests that Indonesia’s growth rate can accelerate to 6%-7% a year from 2011 onwards, up from 5%-6% in 2003-2008; in five years’ time, the economy could be worth $800bn, 60% more than today’s figure. It has a favourable demographic profile and is a major commodities exporter.
Since the Asian crisis it has clamped down on annual budget deficits and cut public debt from over 90% of GDP to 35%; overall external debt fell from 156% to 29% between 1998 and 2008.
The government’s improved balance sheet means that interest rates across the economy have fallen, so the cost of borrowing to invest for the private sector is on a downward trend.
The improved political backdrop – democracy is now well-entrenched – also bodes well for “reforms and macro management”. While the short-term is likely to be bumpy, once this downturn is over a step-change in Indonesia’s performance is on the cards.