Indonesia dreams of joining global economic elite

06 Apr, 2008

Entrepreneur Chairul Tanjung was so dismayed by how Indonesia was blown off course by the Asian financial crisis that he felt his nation needed a big new goal to get back on track -- becoming fully developed within decades.
Endowed with rich natural resources and the world's fourth-biggest population, Indonesia has many of the ingredients that could make it one of the world's top economies.
But despite posting its fastest growth in more than a decade last year, Southeast Asia's biggest economy still appears stuck in a slower lane compared to the booming economies of Asian neighbours such as India, China and even Vietnam.
Seeking to propel Indonesia on a new course and cast off the memories of the Asian financial crisis in the late 1990s, a foundation of executives and senior government officials that is chaired by Tanjung has mapped out a target of 2030 to achieve "developed" status.
Describing the plan as a "noble vision", Tanjung told Reuters via email that it could be made a reality "by hard work and collaboration by all of Indonesia's people." The entrepreneur, who trained as a dentist and started a small business while still at university, now runs a string of firms. He has been ranked Indonesia's 15th richest individual by Globe Asia magazine with a total wealth of $565 million.
The "Visi Indonesia 2030" ("Vision Indonesia 2030") project also has participation from other well-known Indonesian business moguls such as Anthony Salim and James Riady.
The plan -- based around improving human capital, optimising management of natural resources and uniting workers, bureaucrats and entrepreneurs -- is aiming for Indonesia to become one of the world's five top economies by 2030, with 30 firms in the Global Fortune 500 and an educated, urbanised workforce.
It all sounds great in theory, but cranking up growth in the huge developing nation, where millions live on less than $2 a day, faces formidable obstacles ranging from endemic corruption to a weak legal system, creaky infrastructure and poor higher education.
The economy expanded 6.3 percent last year, its fastest in 11 years, but still far behind China's more than 11 percent growth, and India, which grew 9.6 percent in its last fiscal year. "We can achieve that" kind of growth rate, Vice President Jusuf Kalla told Reuters in an interview late last year, adding that this could be achieved through improvements in infrastructure, and by providing "good regulation for investors".
William Wallace, chief economist at the World Bank in Indonesia, said he felt annual growth rates could be bumped up to the 7-7.5 percent range if infrastructure bottle-necks were resolved, but that beyond that progress appeared harder.
"There's a lot they (authorities) could do, don't get me wrong, but it's not like there is one magic solution here, with the possible exception of infrastructure," said Wallace.
Indonesia has pledged to accelerate infrastructure spending, although progress has been hampered by difficulty acquiring land for some projects, while foreign investors say they are put off by issues such as graft, red tape and onerous labour laws.
Wallace explained away some of the faster growth in India and Vietnam, at least, to the fact that they were coming from a lower base after opening up later than Indonesia. But he also said Indonesians would have to invest and save much higher percentages than they were doing right now if they wanted to step growth up another notch.
He cited raw materials as an area of advantage for Indonesia. The country has some of the world's biggest mineral and energy deposits, while its fertile soil and tropical climate make it ideal for crops such as palm oil, coffee and rubber.
Sharing some of the aims of a long-running Malaysian plan to become "a fully developed country" by 2020, the "Visi Indonesia 2030" project has set its sights high. The plan targets a rise in per capita income to $18,000 by 2030, when it sees gross domestic product of $5.1 trillion based on the population growing from 226 million people to 286 million.
This, according to the plan, would make Indonesia one of the world's main economic powers alongside China, the United States, the European Union and India. Indonesia's per capita income was $1,420 in 2006, according to World Bank data, ranking it joint 139th in the world on par with the Philippines and one spot above Bhutan.
To reach the goals in the plan, real growth would need to average 8.5 percent over the 2006-2030 period. The last time the economy was growing at that sort of clip was under the rule of the late former president Suharto and before the regional financial crisis in the late 1990s.
Suharto was ousted by mass protests in 1998 and in that year the economy shrank about 13 percent. Since then growth has resumed but has been more muted. The government has set a growth target of 6.4 percent this year, although this was revised down from 6.8 percent amid concerns over the global economy.
The World Bank said in its latest report that Indonesia should weather a world slowdown reasonably well, although warned 2008 growth may slow to 6 percent, before rebounding next year.
The plan's target to have 30 firms in the Global Fortune 500 by 2030 also looks a tough ask. Indonesia currently has no entry. A list of 100 companies from emerging markets viewed as serious contenders on the world stage compiled by the Boston Consulting Group gave Indonesia only one entry -- the world's biggest instant noodle maker Indofood Sukses Makmur.
In comparison, China had 41 firms on the list and India had 20. Nonetheless, Goldman Sachs, whose economist Jim O'Neill coined the term BRICs to refer to the potential of Brazil, Russia, India and China to overtake G7 economies, sees Indonesia in the N-11, or Next Eleven, list of countries with promise along with nations such as Mexico and Nigeria.
Analysts say key risks to growth in Indonesia include high global oil prices triggering a ballooning of fuel subsidies and also threats to social cohesion stemming from stubbornly high unemployment at about 10 percent and high poverty rates.
Poverty in Indonesia worsened in 2006 after the government cut heavily subsidised fuel prices late in 2005 and because of higher rice prices. The absolute number of poor fell 2.1 million in 2007 to 37.2 million based on a government poverty line of $1.50 a day, but the World Bank has warned the situation is fragile with many households clustered around the poverty threshold.
Indonesia's capital Jakarta reflects some of the deep divides in the nation. Squalid shanty-style housing clusters in between gleaming new shopping malls packed with stores selling designer labels and towering new luxury apartment projects.
Lily Suryani Liem, 41, a store owner in the central Java town of Cilacap, said it was impossible that Indonesia could become a developed nation by 2030. "Maybe in another 200 years from now," she said. But Ismail Fahmy, an Indonesian PHD student currently at the University of Groningen in the Netherlands, said there was nothing wrong with aiming high. "Indonesia needs dreams and projections like this. Our goal is not to achieve the exact goal in the dream but to develop a positive spirit in facing the future."

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