The New York Times takes a look at a "good problem" - the struggle with growth; specific to Indonesia - quite horrible infrastructure.
- For a lesson in the promise and pitfalls of Indonesia’s economic resurgence, hours stuck in traffic on Jalan H. R. Rasuna Said, one of the main thoroughfares here, is as good a start as any. The glut of idling new cars tells one part of the story: strong growth. The Indonesian economy, the largest in Southeast Asia, grew 6.1 percent last year, and domestic consumption is increasing.
- Indonesians bought 286,000 cars in the first four months of this year, according to the Indonesian Automotive Association — 16 percent more than in the period last year — and it can sometimes feel as if they have all congregated in one place.
- But the country’s infrastructure has not caught up. A dedicated bus lane relieves some of the pressure from commuters, but heavy rain frequently floods the road. Along the middle of the street, abandoned concrete pylons stand as memorials to a plan to build an urban monorail system, begun in 2004 but left to languish after money troubles and legal disputes among partners.
- For businessmen like Stefanus Sulimro Lim, who runs a midsize freight forwarding company, Global Abadi Perkasa, it is a worsening headache. Clogged ports, potholed roads and persistent gridlock mean extra costs in the form of blown truck tires, broken shafts and wasted time.
- Mr. Lim’s frustration contrasts with the enthusiasm of international investors for Indonesia. Considered only a few years ago as a laggard in the region, Indonesia is fast becoming a darling of financial markets. Foreign investment in the country rose 52 percent in 2010, to $16.2 billion, from the previous year. The credit rating agency Standard & Poor’s raised its sovereign debt rating for Indonesia to BB+ last month, becoming the last of the three big agencies to rate the country one peg below investment grade.
- The improving grades from the ratings agencies are considered a reflection of sober fiscal management under President Susilo Bambang Yudhoyono, who has overseen falling public debt ratios and growing foreign exchange reserves. The country is widely expected to reach investment grade next year, drawing it closer to emerging market heavyweights like China and India.
- But as the attention on Indonesia grows, so does the focus on flaws that, according to analysts, may restrict future growth. The country, with a population of 240 million, suffers from corruption, its bureaucracy is inefficient, and — most important, economists say — its infrastructure is strained to the limit.
- Across the country, the underpinnings of power and transport networks are fraying. Ports and airports are largely antiquated and inefficient, while frequent electricity shortages cause disruption to homes and businesses. Gridlock in Jakarta is estimated by the government to cost the economy $1.5 billion a year, through wasted fuel, lost working hours and illness. Plans to improve infrastructure, like a project to complete a series of toll roads across the island of Java by 2014, routinely run into barriers, largely because of the frustrating difficulty of acquiring land.
- The Indonesian government is moving to address the problems. One flagship change, a long-awaited bill on land acquisition that would make it easier to take land for infrastructure projects in return for compensation, is expected to be passed by the Indonesian House of Representatives this year, although it has faced some resistance.
- “We’re not like China,” he said. “We don’t make decisions like China does.” Indonesia is “a democracy, a newly working democracy that’s trying to understand how to put the different pieces of the puzzle together.”
- Mr. Wirjawan pointed to the latest investment data to back his assertion that foreign investment was flowing beyond Indonesia’s primary industries like mining and agriculture: $13.2 billion of the $16.2 billion in foreign investment last year went to industries like transportation, food and manufacturing. “I think there’s going to be more and more money being put into manufacturing and infrastructure,” he said. “That’s good. That’s what I call smart capital.”
- Indonesia, he said, also finds itself in a demographic “sweet spot,” with about 60 percent of the population 39 years old or younger, an opportunity that will prevail for the next 15 years.
- For Fauzi Ichsan, senior economist in Indonesia at the bank Standard Chartered, the country remains an attractive destination, despite its flaws. “Even though infrastructure development is slow, the other two pillars of the economy — i.e., domestic consumption and commodity exports — are doing well,” he said.
[May 22, 2009: Indonesia: A Must Own Emerging Market]
[Jul 9, 2009: Indonesia's Star Continues to Rise on Back of Yudhoyono's Re-election]
[Aug 10, 2009: Indonesia Expands at Fastest Pace in Southeast Asia]
[Jan 22, 2010: FT.com - How the BRIC was Born]
[Apr 1, 2010: Indonesian Market Continues to Star in 2010 - Market at All Time Highs as Country Opens Itself Up Further to Foreign Investment]
[Aug 8, 2010: NYT: After Years of Inefficiency, Indonesia Emerges as an Economic Model]
[Oct 9, 2010: [Video] CNBC's Tim Seymour & Team - The Prospects of Indonesia]
[Jan 11, 2011: BW - The BRIC Debate, Drop Russia, Add Indonesia?]
[Feb 7, 2011: Irony in Indonesia]