Pacific Money

Indonesia’s Economy Presses Ahead

While the world’s economic picture increasingly looks gloomy, Indonesia seems to be on a roll.

The latest data for Indonesia suggests that, as I’ve previously noted, it continues to be the darling of foreign investors. Third quarter data shows that foreign direct investment (FDI) into Indonesia rose 22% year-on-year to an all-time record of $5.9 billion USD for the period. 

Whilst manufacturing powerhouse China’s total figure for the same period comes in much larger at $24 billion USD, the key difference is in trend direction.  Despite the still anemic global outlook, Indonesia’s increase stands in stark contrast to China’s decrease: China’s inbound FDI fell in September by 6.8% from the previous year. 

Indonesia also looks excellent when compared to India. The latter country, with its vast population and an economy over twice the size of Indonesia, saw only $4.64 billion USD of FDI in the second quarter of this year (the latest period for which data is available).

Indonesian government debt is proving popular, and while South Korea and Thailand cut interest rates in the last couple of weeks, Indonesia chose to keep rates stable due to the strong performance of domestic demand (to be fair, Indonesian rates were already at historical lows).

All of this good news comes despite ongoing worries about protection of foreign investors and corporate governance, not least the ongoing high profile and national reputation damaging Bumi Resources affair.  Further difficulties must be overcome in the human resources area – in particular, improvements must be made to labor force quality. However, as noted previously, the strength of the domestic economy is a key factor that so far is overcoming the doubts. A recent report from McKinsey Global Institute highlighted this – predicting that the number of consumers in Indonesia will go from 45 million today to 135 million in 2030.