On Friday, I was on the flight back to Singapore from Jakarta. The gentleman next to me was employed by SAP India and he was returning to India for the weekend. He had been working with an Indonesian corporate client for more than eight months. For every monthly visit back home to Mumbai, he had to transit through Singapore or Malaysia. Indonesia shares borders with India (Andaman-Nicobar Islands) and loves Bollywood films. Yet, two of the world’s most populous democracies, part of the same continent, do not have a direct flight between them. India needs to look east more closely and more thoroughly.
Indonesia is not discussed in the same breath as India and China. That is a mistake. It is a good thing that US President Barack Obama has some historical ties to the country and is likely to visit it in July. That will remind the rest of the world of the importance of this resource-rich, demographically young, budding and evolving democracy.
Indonesia needs to invest more to be able to tap into its rich minerals and oil wealth. It has resorted to importing crude oil although it was one of the members of the Organization of the Petroleum Exporting Countries. That is due to the fact that the sector has not received the investment needed to get wells to produce oil and to transport it.
Western commentators are fond of citing the corruption and the investment-unfriendly climate in the country, with courts usually ruling against foreign investors in disputes. That is an unfair and one-sided characterization. Many foreign enterprises do seek to exploit and take advantage of the evolving legal framework in Indonesia. When they are caught out, they squeal.
Indonesia has enacted one of the most comprehensive, credible and fair regional autonomy frameworks in the world. Its federal structure is both a practical necessity and pragmatic. It is impossible to govern the archipelago democratically with an over-centralized power structure. Decentralization helped the nation peacefully resolve the conflict in Aceh in 2005.
While the Nobel committee did the right thing in recognizing the role of former Finnish president Martti Ahtisaari in resolving the conflict between the breakaway movement in Aceh and the rest of Indonesia, Singapore’s Kishore Mahbubani struck a chord with many when he argued in October that the committee would have done better had it rewarded the Indonesian leaders—the president and the vice-president—for their sagacity.
The country, given its size and pluralistic political culture, may be languorous in its progress towards an open economy and an open society. But the direction is right. That is why most pundits do not expect any upset in the upcoming national elections. President Susilo Bambang Yudhoyono is expected to return for another term with a clear mandate. Recently, Indonesia’s relative political stability amid the turmoil in Malaysia and Thailand has not gone unnoticed.
The country witnesses, from time to time, the rise of fundamentalist tendencies. For instance, recently, the Islamic clergy called for a ban on the practice of yoga in the country as the clergy in Malaysia did back in November. The Ahmadiyas also came in for violent treatment at the hands of other Muslim sects. However, the government managed to ensure that these protests and messages did not spiral out of control. While Indonesia remains the world’s most populous Muslim nation, no reference is made to Islam in the Indonesian constitution (source: Wikipedia).
Moderation in religion and politics has played a role in keeping the country’s economy relatively stable. While many other currencies have plunged precipitously, Indonesian rupiah’s weakness in recent times, despite a fragile history, has been controlled and manageable. The economy has grown at a real rate of at least 6% in the last several years and is expected to maintain a positive growth rate in 2009, something that cannot be said of many nations in the region and in the world. Forecasts range from 2% to 6% growth for Indonesia this year.
Besides being multi-party noisy democracies, what unites India and Indonesia is the fact that in both countries, domestic consumption plays a larger role in the economy than it does in China. That insulates their economies from the global turmoil to a degree. Therefore, it is interesting that consumer confidence indices in Indonesia have at least stopped falling for now. That is good news for growth prospects this year in the country.
All this is not meant to suggest that the Indonesian market is a screaming “buy” now. There too, India and Indonesia are similar. Analysts’ estimates for corporate earnings in both countries do not carry a margin of safety that value investors would like to see before they take the plunge.
But there is no reason for India’s policymakers to wait to take the plunge in harnessing the tremendous commercial and strategic synergies that exist between both nations.
V. Anantha Nageswaran is head, investment research, Bank Julius Baer and Co. Ltd in Singapore. These are his personal views and do not represent those of his employer. Your comments are welcome at email@example.com