A False Hope? Indonesia’s Economic Miracle
Image Credit: flickr (Mat Coates)

A False Hope? Indonesia’s Economic Miracle

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A few years ago, I was sitting in a swanky bar in South Jakarta popular with expats and Indonesian bureaucrats, sipping red wine for $25 a glass. During a discussion about the state of affairs in the country, my reference to Indonesia as a “Third World” country triggered an angry reaction by an Indonesian diplomat working for the Ministry of Trade. “Indonesia is no longer a poor country,” she rebutted, quoting various studies that placed Indonesia firmly in the group of emerging economies and went on to argue that the “I” in BRIC should belong to Indonesia rather than India. The acronym MIST to describe the next tier of large emerging economies had not yet been coined at the time.

Indeed, Indonesia has made a remarkable comeback from being Southeast Asia’s economic basket case in 1998 to an emerging market whose economy has been growing annually at more than 5 percent for several years. In reaction, analysts and journalists alike have been outdoing one another with positive assessments of Indonesia’s economic growth trajectory. The writing frenzy recently culminated in an article published in The Guardian, a UK daily, which claimed that Indonesia’s economy may surpass England and Germany in a few years.  “It’s like people don’t want to hear anything else,” a foreign journalist based in Jakarta whom I had sent the article told me afterwards, lamenting how she finds it increasingly difficult to pitch stories to newspaper editors that cast doubt on Indonesia’s economic miracle.

Yet, Indonesia’s economic growth is neither sustainable nor inclusive.

An inconvenient fact is that Indonesia’s economic growth is mainly driven by a commodity boom fuelled by China’s appetite for raw materials and global demand for biofuels. China’s enterprises are building bullet trains while Indian car- and IT-companies compete around the world. Indonesia, all the while, manufactures…essentially nothing. Most international manufacturing companies have moved on to greener pastures a long time ago while domestic companies are unable to compete internationally with the exception of a few conglomerates run by crony capitalists from the New Order period. 

The other main driver of Indonesia’s economic growth is domestic consumption. This is mostly driven by easy access to credit cards. Since the mid-2000s banks have been successful in convincing Indonesians, much like their American counterparts, to buy stuff they don’t need, with money they don’t have to impress people they don’t know. The amount of credit cards in circulation, which have increased 7 to 8 percent annually, reached such staggering heights in recent years that Bank Indonesia had to introduce new guidelines last year to limit the number of credit cards a single person is allowed to hold. The same guidelines also stipulated that Indonesians earning less than U.S.$330 a month should no longer receive credit cards. 

Comments
53
jonype
March 2, 2014 at 04:36

the indonesia economic bubble or emerging fraud economy will burst 2014-2016….you can take that to the bank. Nice while it lasted for the locals..

sunau
February 11, 2014 at 18:43

The winds of change are not boding well for the Indonesian archipelago. A Current Account Deficit, Depreciation of 20% of the Rupiah against major currencies, Incremental Inflation, Higher Debt to service ratio and Capital Flight are just some of the more serious issues that Indonesia would have to face with.

Not only have companies seen a 20% decline in their cash reserves when measured against major currencies, they now face a very high probability of higher interest rates which will severely tax their earnings. To add to this rather volatile cocktail, no major policy reform is expected as political parties will use the nationalism tactic try to garner as much electoral vote as possible as they battle for elections later this year.

Those exposed to debt will be first in the line of fire followed by plunging property prices and demand. Consumer focused businesses will follow. Unfortunately most foreign funds and International Capital will choose to minimize their Indonesian exposure if not exit entirely.

jony
January 3, 2014 at 16:19

No Hope in Dope

That goes for Indonesia

All prices are hyper inflated based on free credit cards to slum dwellers, is this economy sustainable? No.

I trust my nest egg is good ole USA.

cat
December 12, 2013 at 02:28

Partly I agree, but this is a way too pesimistic and provocative view on the other hand (why many other economic experts can give positive remarks besides the downside). Yes our politicians and goverment are crap, sucking people money for their own pocket. Lack of leadership, honesty, vision and management skill of our leaders (read: president, the cabinet and the party in power) I think the main backdrop. When the leaders fail to show those things, what people can expect and follow. This administration has already totally failed although I was the one among the millions Indonesian who casted vote to SBY in the last election. But I believe once we get the right leader, hope in 2014, the country can fly high near to expected limit, if not maximum. Some new born stars (such as duo Jakarta leaders) are starting to show their light and people seems to love them. I see in the road level that the generation is shifting now and most of young generations especially from the middle class are progressive mindset people. I see there are big potential among Indonesians, if the leaders are visionary and have a little guts, it is possible that Indonesia will soon have their very own car, trucks, engine, telecomunication industries etc (remember we developed those industries around 80′s -90′s but Asian crisis, IMF and the fall of Suharto ruined those all and among others which are left are Indo. Aerospace industry and some other tech industries which hardly strugle backed by half-hearted support of the Govt) – Posting 5%-10% of more or less USD200 billion national state budget in exchange of fuel subsidy for making frog-leap industries development will not harm anything.

jalanjaksa
December 6, 2013 at 16:37

The author is correct. the indo economy is a sham with kampung people getting credit cards, and how is the property market doing in a 3rd world country with no civil rights? Title ownership is a western culture, all indonesia if you look hard enough – is a sham or scam….do not invest or you will be on the next jumbo jet home crying because Mas stole your money.

Thank you to the author for writing the truth!!!

Long live the US dollar

PS. would you trust your retirement with Indo rupiah or USD?

Bismihayati Wahab
September 16, 2013 at 18:27

This article seems too pesimistic about Indonesian economic condition and potential. As new political condition after 30 Yr under New Era rezim, everithing should be viewed with different angle compare to Indonesian past history and of course to other foreign country. People should not be to easy to take conclution base on comparation between country to country.

Now there is more accountable goverment in Indonesia, more transparent and more strong House of Representatif (DPR) to control goverment. Even there is some immaturity of the member of DPR, at least the infrastructure of political agenda already available. Not many around the globe have the economic growth more than 5% nowaday, and Indonesia can achieve that condition almost last 10 years. In big picture, there are so many room to improve in the country, that mean so many economic oppurtunity!

With 300 Mill young population, with so rich nature resourcess, and growing better political system, who can not understand how big this country can do in the future? only the idiot can't. Even the Java island is more developed than others it is also a strong point to see there is so much to do in Indonesia.

The financial market is not developed well yet. People of Indonesia can do that latter.

hendry
September 7, 2013 at 16:18

Just because he read a sticker in the car, which I believe just to make a joke, he easily made a conclusion that "Plenty of Indonesians can no longer repay their debts and therefore no longer consume."…bwahaha. Even in the climate of today, when Rupiah has been declining rapidly against dollar, we can easily see in the ground that Indonesian economy is have a strong resilience. And yes, the recent Global Competitiveness Report by WEF surprisingly (especially under all the pesimist reports recently on Indonesia ) put Indonesia in the rank 0f 38, making it the most improved country in G-20 grouping, from the least year rank of 50. My message to Michael Buehrer is: please do not write an article about a complex country with very simplistic framework of thinking, especially when you write it under very emotional mood after having a feud with local diplomat in the bar:)

Samar
August 25, 2013 at 06:18

Indonesia economy may be strong, but at what cost? Can we undoubtly pretend that it results in a better quality of life for the great majority of people? Is our hability to generate hudge amount of profits enough to provide a population of nearly 300 millions souls, good education, health care, rights protection and viable environment? Money for a nation is comparable to blood in a human body, but is it the amount that matters or the way it circulates? How can an economy, mostly based on aboundant natural resources and cheap human energy, guaranty real and sustainable prosperity? If Indonesia is so rich why are its cities so ugly and its nature so damaged? I can't prevent myself from quoting words from a French popular song that say: "Chez ces gens la, monsieur, on ne pense, on compte!" Which mean: "With these people, mister, we don't think, we count…"

Authentic Jordans for Sale
July 3, 2013 at 23:37

The report said that “during the handling of the incident, no members of the public were killed or injured,” leaving it unclear whether any police officers or officials were hurt or even killed. Authentic Jordans for Sale http://www.stonewall.org.uk/jordan/JordansOutletStore.php

indonesian passing by
May 26, 2013 at 20:13

There was some good point in what Mr. Michael Bühler (or Buehler CMIIW) article but there also flaw in his article (Major flaw if I could say). There was lack of scientific evidence in his article. How he can be sure that most of Indonesian was using credit card to sustain their consumtif behaviour. Just for info, my Father was a middle class worker with salary more than $ 5.000 per year. But most of his friends (including him) doesn’t like the idea of buying item with credit card. But i think it only apply to an “old established middle classman”, because most of my friend who already acquire middle class status was familiar with credit card. But then again, how many person capable achieve middle class status at age 25-35? I think that was not much. Most middle classman was around 40 or older (but its only my opinion, I don’t have valid data about it). Interestingly, for worker who still categorized as “poor”, they had lifestyle similar to middle class. They still capable to buy new motorcycle despite complaining about the rising price of foodstock, gas, etc. I know that because despite my father was pretty “rich”, since i entered collage i must pay my own necessity (minus collage fee off course). So i must work if i wanted to buy something. For a boy who just graduate from high school and doesnt have experience. Most job available was as waiter and so on. So more less i know their lifestyle. I think that showing what Mr. Bühler was partially right. But then again, I don’t have valid data about it. So, despite his gloomy opinion about Indonesia economy. His opinion was had some base, but not with evidence. It more likely an article that was writed by a student to fullfil his assignment.

Well it just my two cent.CMIIW…

Roman
May 26, 2013 at 17:45

Though the author's opinion on Indonesia's economy may be too emotional, he does mention the problems the country's economy really faces. Some of ideas similar to those in the article are expressed in the Economist – a newspaper whose authority is hard to doubt http://www.economist.com/news/asia/21572245-gloomy-politics-so-how-long-can-bright-economics-last-tipping-balance

investor
May 14, 2013 at 20:10

Indonesia to discredit your writing, I really do not think quality, impressed by the thought made ​​you personally. seems so stupid. you may write the above article, that investors hesitate to invest in Indonesia. but I think investors are smart enough to judge, and not be fooled by your article. Indonesian economy is very strong against the crisis, the crisis of U.S. and European crisis, your accusations are false about the Indonesian economy, it is unreasonable. Indonesian economy rests on the strong purchasing power of the people, so that the world economic crisis has no effect on the Indonesian economy. some economic survey, predict Indonesia will enter the order of the world's top 10 economies by 2030.

khodi
March 31, 2013 at 21:24

well, all are the facts, the economy still centralized in Java Islands, prefer to mega infrastructure rather than development outside Java, with country that has abundant of natural resources, we still import salt, , casava, onion. People at the border still depend on neigbor country's subsidize goods. Elite politics fighting for group and personal interest. However, am pretty sure that the people of this1 trillion GDP country , will fight for the best for their country and Indonesia will prevail :)

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