Indonesia's Continued Growth

Indonesia's capital city Jakarta at sunset. (Photo: Hywit Dimyadi, Shutterstock)

Last fall, chaos erupted outside a sleek Jakarta mall. Dozens were injured after 3,000 people massed, clashing with police. That the occasion was a BlackBerry launch couldn't have contrasted more with the riots that undid the autocratic President Suharto 14 years earlier.

The transformation has been epic. Soaring office buildings and more than 500 malls render Jakarta unrecognizable compared to the columns of smoke and chaos that engulfed it in 1998. Mandarin echoes across Soekarno-Hatta International Airport terminals bristling with non-English-speaking Asian businessmen. Lamborghinis, Ferraris and Porsches jockeying with exhaust-spewing trucks and motorcycles for precious potholed space in the capital's grinding traffic are not out of the ordinary.

The change, bolstered by surging domestic demand and one of the biggest natural resources booms on earth, is being minted. Beginning in December, after a banner year of 6.5 percent growth, a eulogy to the woes of Southeast Asia's biggest, nearly $1 trillion economy was kicked off through an investment grade rating on its sovereign debt.

But for the ASEAN G-20, it remains a story of often quiet success beset by nagging difficulties. Indeed, calls are emerging for reassessments by two of the three major ratings agencies—Moody's Investor Services and Fitch Ratings—who have given the world's fourth-most-populous country its nod (Standard & Poor's is expected to follow suit).

Still, few can deny the world's largest Muslim-majority nation, long overshadowed by terrorism and sectarian upheaval, is experiencing affluence, with some analysts predicting a $9.3 trillion economy by 2030. Beside European debt woes, a sluggish American economy and projections of 2.5 percent global growth, record domestic spending—two-thirds of GDP—is cocooning Indonesia amid increasing suspicions of a Chinese bubble to the north.

China's potential as the world's biggest economy and its status as Indonesia's primary export destination, however, remain essential to continued prosperity—even as labor-heavy industries turn to Indonesia following wage increases on the mainland. India, itself poised to overtake China as the world's most populous nation, is also on the map.

Last year, Chinese imports from Indonesia topped $21.6 billion, up 53.4 percent from 2010, Trade Minister Gita Wirjawan told The Jakarta Post. In the same period, Indonesia exported $13.3 billion in commodities to India, up 34.8 percent from the previous year.

Traditional non-oil and gas commodities have been crucial. Dominating exports, they contributed 79.6 percent at $162.02 billion—a 24.9 percent increase from the previous year, say government statistics. These included minerals, mostly coal, along with nickel, aluminum and copper as well as commodities like palm oil and rubber. At $203.2 billion, according to Central Statistics Agency data, last year's overall exports were double 2007's, and 29 percent over 2010.

Imports outpace exports, but this year Indonesia enjoyed a trade surplus of $26.3 billion—a 19 percent increase over 2010. Demand also continues from emerging economies like Russia and South Africa, where imports have leapt 107 percent. China, Japan and the United States, however, remain the top markets for commodities, at $21.6 billion, $18.3 billion and $15.7 billion, correspondingly. This week, South Korea and Indonesia inked a two-year, $40 billion bilateral trade agreement.

Daunting troubles remain, though. President Susilo Bambang Yudhoyono's much-touted $468 billion "master plan" aside, poor infrastructure bedevils growth: With limited port capacity, businesses spend up to 30 percent on transportation. "The inadequacies in Indonesia's transportation infrastructure are likely to hinder the country's global competitiveness unless addressed," Standard & Poor credit analyst Rajiv Vishwanathan said this week.

Labor unrest darkens the skies, too. Labor laws have frustrated foreign investors, while diplomatic spats have flared over worker protests at 3,000 Japanese, Taiwanese and Korean-owned plants in West Java.

Then there's what Moody's politely terms "relatively weak governance." But massive corruption by any other name is President Yudhoyono's boogeyman. As repeated surveys show Indonesians openly yearning for the tight-fisted, 32-year rule of Suharto, 2011's Transparency International's Corruption Perceptions Index holds little surprise: Indonesia ranks 100th out of 182 countries.

But with a fast-emerging middle class and half its population of 238 million under age 30, time is on Indonesia's side.

Luxury real estate, for one thing, is skyrocketing. A recent survey indicates Jakarta's high-end property values rose over all Southeast Asian cities at a rate of 14.4 percent, and 3.15 percent over Hong Kong. Competition among consumer goods, political parties and financial services providers, meanwhile, leaves Indonesia spending more on advertising, at $2.11 billion annually, than any other country in the region. Indonesians are second among Facebook users after Americans.

At the beginning of February, the U.S.-ASEAN Business Council arrived with its largest ever delegation of CEOs from 35 companies. As the world's palm oil colossus, biotech companies are also eyeing Indonesia closely. In January, American multinational Monsanto announced plans for a $40 billion regional corn-seed supply base. The agricultural giant has also been helping the government cultivate rubber and palm oil.

Also that month, the World Bank and the International Finance Corporation reported that opening an Indonesian business is 13 days faster and 8 percent cheaper than two years ago. It noted that Indonesians wait 3.5 times less to acquire construction permits than Malaysians, and 50 percent less than Thais.

Jakarta's J.W. Marriott epitomizes how Indonesia's troubled past converges with its evolving role in the global economy. One of Jakarta's most upscale hotels, its striking frontal façade was destroyed by a 2003 suicide bombing that killed 12 and injured more than 100 others.

Nearly a decade on, a vigilant security cordon still greets visitors, beginning with a police dog nosing past the doors of all approaching vehicles. But in ways more mundane, the Marriott is like any other high-end hotel: A can of Coke at a café inside will cost you $5.