Thursday, July 9, 2009

Indonesia's Star Continues to Rise On Back of Yudhoyono's Re-election

President Yudhoyono appears to be on the way to a striking victory in Indonesia's election and this not very well followed country continues to attract some fans. With the caveat that if Western markets take another plunge this summer, that emerging markets most likely will follow - this country continues to intrigue me over the longer run. Thus far in this correction, the major ETFs for Indonesia have held support well.

The two main ways to play were outlined in [May 22, 2009: Indonesia: A Must Own Emerging Market] and Morgan Stanley jumped on the bandwagon a few weeks later [Jun 15, 2009: Morgan Stanley - Add Indonesia to BRIC]

From Bloomberg this morning:
  • President Susilo Bambang Yudhoyono swept toward a second five-year term, receiving a strong mandate from Indonesia’s 176 million voters to take the country’s economy to new heights of growth. Yudhoyono, better known as ‘SBY,’ won 61 percent of votes in yesterday’s election, according to a sampling of nationwide ballots by the Indonesian Survey Institute, which correctly predicted previous contests.
  • Leveraging that victory into achieving his goal of growth rates on par with China and India will hinge on the ability to build roads, ports and power plants and lure foreign investment. To do so, he’ll have to overcome a bureaucracy where power is decentralized down to the district level across 17,500 islands.
  • I would say a ‘definite yes’ in maintaining very solid economic growth, a ‘maybe yes’ to become the 9 percent superstar,” said Milan Zavadjil, Indonesia country head for the International Monetary Fund. “To go to the China level you need to take care of some issues, like major improvements in infrastructure, the investment climate and the legal system.”
  • Yudhoyono has pledged to double infrastructure spending to as much as $140 billion during a second term to achieve annual growth rates of 7 percent. The president will also need to tame the rupiah, Asia’s most volatile currency, to reduce investment risk. It has both plunged 40 percent and gained 19 percent within the past 12 months. “Somebody has to eliminate the foreign-currency risk,” said James Castle, president of business advisory services company CastelAsia, who has lived in Indonesia for more than three decades. “Until they do, I don’t see a real rapid growth in infrastructure.”
  • Fixing Indonesia’s congested roads, neglected ports and aging power plants needs to be among Yudhoyono’s top priorities, according to nine of 11 chief executive officers contacted in the past month by Bloomberg News. He also needs to improve transparency in the legal system and reduce corruption to attract global investors, the survey found.
  • Indonesia ranked 86th out of 133 economies in terms of infrastructure quality in the World Economic Forum’s 2008 Global Competitive Index. That was lower than Pakistan, which faces almost daily attacks by terrorists, and Sri Lanka.
  • While Indonesia received a record $8.3 billion in foreign direct investment last year, it lagged behind the $92 billion haul for China and $33 billion in India.
  • Almost 33 million Indonesians, or 14.2 percent of the population, live on less than $0.65 per day, down from 16.7 percent when Yudhoyono was elected in 2004. He had targeted cutting the poverty rate to 5.5 percent this year.
  • The Jakarta Composite index has climbed 54 percent this year, third best in Asia behind benchmarks in Shanghai and Sri Lanka.
  • “Our target is to put another ‘I’ into BRIC,” said Emil Salim, a presidential adviser and former cabinet minister. “Achieving that in five years is possible.”
Bloomberg earlier this week
  • Indonesia’s $433 billion economy has skirted recession unlike many Asian neighbors that rely more on exports. Gross domestic product expanded 4.4 percent in the first quarter from a year earlier, compared with a 6.2 percent contraction for Malaysia and Thailand’s 7.1 percent slump.
  • Per capita income doubled in Yudhoyono’s first term to $2,237 last year, according to the International Monetary Fund. Cash handouts to 18.5 million households helped sustain his approval rating above 60 percent even as he cut fuel subsidies that strained government finances.
  • The budget deficit will be about 2.5 percent of GDP this year, Finance Minister Sri Mulyani Indrawati said on June 30, compared with 7.6 percent in Malaysia.
  • Yudhoyono has reduced the debt-to-GDP ratio to an estimated 33 percent from 57 percent in 2004, according to the Finance Ministry.
  • The country’s 17,500 islands span an area wider than the continental U.S., creating transport bottlenecks that have restrained growth.
  • Still, Indonesia’s unemployment rate of 8.4 percent is the highest in Asia. About 32 million people live on less than 70 cents a day, according to the government.
  • The nation’s ranking in Transparency International’s corruption-perception index remains lower than Nigeria and Costa Rica.
  • With natural resources like palm oil, coal and nickel, Indonesia benefited from a China-driven commodities boom...Indonesia is the world’s largest palm oil producer and the biggest exporter of power-station coal.
And an in depth story on Yudhoyono here in the Wall Street Journal
  • Indonesia is re-emerging as one of the world's hottest developing economies, a remarkable turnaround for a country that was once widely viewed as a basket case.
  • Much of the credit goes to Indonesia's president Susilo Bambang Yudhoyono, a former army general who is widely expected to win re-election after five years in power. Under his watch, the government has stamped out Islamic terrorism and ended its civil war in the resource-rich province of Aceh. He has brought state spending under control and launched a popular anti-corruption drive, landing a number of senior politicians and central bank officials, including one whose daughter is married to Mr. Yudhoyono's son, in jail.
  • Mr. Yudhoyono said that if he's re-elected, he will fill his next cabinet with technocrats, rather than hand out positions to a wide range of under-qualified leaders from rival political parties, as he did to placate opponents in his first term. He acknowledged that in the past his government has included businessmen with conflicts of interest that made it harder for him to rein in corruption and push reform -- a practice that he pledged to end in a second term.
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