Feb
8
Indonesia Powers On – 6.5% Growth in 2011 – $ 20 Billion Of New Investments – The Secret Of Steady Growth? Democracy and Consensus
By Paolo von Schirach
February 8, 2012
WASHINGTON – If you think that Asia is only about China and India, watch out for Indonesia. Indonesia is the quiet success story of South East Asia. Without fanfare, the country managed to grow more than 5% in seven out the past eight years. For 2011 the growth rate was actually 6.5%. Especially if compared with weaker performances in Thailand at 3.5% and the Philippines at 2.7%, while Singapore actually experienced a contraction at the end of 2011, Indonesia looks quite remarkable. The Wall Street Journal reports that in 2011 the country registered $ 20 billion in new foreign investments, a record.
Steady growth
While the country is still quite poor, analysts are bullish, citing good fundamentals. Despite lack of good infrastructure and somewhat inadequate investor protection, there is confidence in the reformist government headed by President Susilo Bambang Yudhoyono, (SBY). Besides, Indonesia’s growth is largely driven by domestic consumption, as opposed to exports led growth that can experience high volatility. A large country of 240 million is a big market and so investors like auto manufacturer Suzuki are eager to expand capacity.
Easier to acquire land
And a new law that will make it easier to acquire land necessary for infrastructure development is a good signal for foreign investors. According to analysts, this will boost additional construction activity by up to 30%.
In all this, it looks as if the Government has a steady hand. It improved macro-economic management, while reducing overall debt. So much so that the Fitch credit rating agency lifted Indonesia debt to investment grade.
Why not faster growth?
Of course critics argue that Indonesia could grow at a much faster pace, if only the government would push harder. But it will not, because trying to race towards stronger growth would undermine democratic participation. According to President SBY it is much better to have slower growth but grounded on political consensus that it takes a while to build. The recently passed law allowing expedited land purchases that in turn will trigger more construction spending is an example of this slow consensus building.
Follow the China model?
Or would we rather have the Chinese model in which authorities can generally direct resource allocations to accomplish preset growth targets? In China authorities simply take over the land they need with token compensation. Sure enough, building infrastructure is not a problem in China, as there are no political impediments to take control of whatever may be needed –at least until yesterday, that is. Now we know of thousands of protests in China, often triggered by arbitrary land grabs. The Wukan village rebellion that became world famous for a while started because of a land issue.
If we take it all this in, which one would you choose: Indonesia with “only” a 6% GDP growth and democracy, or China with 10%, but without participation?
Print This Post