Ever since Goldman Sachs economist Jim O'Neill caught investors' imagination with the Brics (Brazil, Russia, India and China), research departments have spent almost as long on wordplay as on heavy macro analysis. CLSA has big hopes for its new coinage, Chindonesia. The brokerage has been energetically touting “Asia's next growth triangle”: to the China/India axis, add Indonesia.
If strong growth is the main consideration, then south-east Asia's biggest economy has earned its inclusion: year-on-year gross domestic product growth of 4 per cent in the second quarter is the best in the region. While export-dependent neighbours such as Thailand and Malaysia have been gnawed by recession, Indonesia has relied on resilient domestic consumption, supported by handouts the state can actually afford. The budget deficit should narrow to less than 2 per cent of GDP next year, from 2.5 per cent this year. By then, public debt should be about 30 per cent of GDP – much lower than similarly rated peers.
Still, there are reasons to give investors pause. Currency stability – high on the wish list for any serious investor – remains elusive. The rupiah plunged by a quarter and then gained a quarter in the past 12 months. President Susilo Bambang Yudhoyono, re-elected last month, needs to get a grip on the twin problems of bureaucracy – power is concentrated at the district level across 6,000 inhabited islands – and graft. Last year, the Corruption Eradication Commission investigated fewer than 1 per cent of the complaints it received.