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Indonesia and the BRICs

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In Brief

The Indonesian economy has managed to achieve very solid growth after successfully weathering the Global Financial Crisis (GFC) in 2008. The economy grew at 4.5 per cent in 2009, is likely to grow at 6.0 per cent in 2010 and is projected to grow at 6.2 per cent in 2011.  This kind of performance is making many Indonesians wonder whether Indonesia could soon join the BRIC group of high-performing emerging economies.

The term ‘BRIC’ was coined in 2001, by Dominic Wilson of Goldman Sachs, to refer to Brazil, Russia, India and China, which were experiencing rapid economic growth, and were expected to overtake the U.S. by 2018.


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Since then, the term has come to symbolise the shift away from the G7 advanced economies (the US, Japan, Germany, France, the UK, Italy and Canada) toward the four BRIC economies as a new centre of world economic power.

IMF figures show that over the period 2014–2030 the BRICs are expected to grow so fast that their share of the world economy will rise from 19.4 per cent to 30.3 per cent, exceeding the economies of the US, the EU and Japan. In 2010, China overtook Japan as the second-largest economy in the world, after the US. With a projected 2030 GDP at 94 per cent of that of America, China’s economy will not be far behind the US.

Is the ‘BRIC’ grouping still relevant?

Since 2001 much has changed.  For instance, Russia’s slow growth, pervasive corruption, and inability to diversify its economy away from over-dependence on oil and gas exports, may mean that it should no longer be considered a BRIC economy.

And despite the fact that in 2007 the Indian economy was less than one half of that of Russia, by 2030 the Indian economy will almost certainly be as large as Russia’s because of its much higher growth rates.  The relevance of the BRICs therefore needs some re-assessment. If Indonesia maintains its rapid growth, the term ‘BIIC’ (Brazil, India, Indonesia, China) may be a more appropriate sobriquet.

Will Indonesia’s rapid growth continue?

Indonesia still has a long way to go before it can match the BRICs’ economic size. In 2010 Indonesia’s GDP accounted for about one third of India’s, and may find it hard to catch up by 2030.

Yet as a member of the G20, Indonesia is already reckoned as one of the 20 major economies in the world.  Collectively, the G20 economies account for about 85 per cent of global Gross National Product (GNP). The G20 group has grown in stature since the Washington summit in 2008 and the more recent G20 summit in Seoul, Korea, in November 2010, and will therefore replace the G8 countries (US, Japan, Germany, France, UK, Italy, Canada and Russia) as the main economic council of the 20 major economies in the world.

Indonesia weathered the GFC of 2008 well, with its real GDP growth in 2009 the third highest in the G20 after China and India. The Indonesian economy is predicted to grow at around 6 per cent or slightly more in 2010 and 2011, due to sound macroeconomic policies and economic resilience in the face of external shocks.

These two facts suggest that Indonesia could continue to grow relatively rapidly. It needs to address two development challenges if it is to aspire to a faster pace of growth.

First, Indonesia needs to invest much more in rebuilding its crumbling physical infrastructure, which is a serious impediment to faster growth. Increased investment in social infrastructure too, to expand and improve the quality of its health services and its education at all levels, particularly in at the secondary and tertiary levels, is essential to stronger growth.

Indonesia must also improve its governance and institutions, particularly its bureaucracy and its legal and judicial systems. It remains one of the most corrupt countries in East Asia. Indonesia needs to root out corruption, since a country with pervasive corruption cannot hope to become a dynamic and prosperous country.

Provided it tackles the issues of corruption and infrastructure, Indonesia could well be the next ‘BRIC’ nation, and this will transform the group of BRICs into a more internationally influential ‘BIIC’.

Thee Kian Wie is a senior economist at the Indonesian Institute of Sciences (LIPI) in Jakarta.

One response to “Indonesia and the BRICs”

  1. BRIC Nations : Powerful Engine
    By Sunil K Kumbhat
    Jodhpur (Rajasthan) India

    BRIC nations are now becoming the “Powerful Engine” to pull the global economy out of the current financial crisis as two major countries of the bloc — India and China — have least suffered from the current global upheaval. With Brazil, the situation is a bit complex as they are tied to the US economy. As compared to Asian partners in BRIC, the Russian economy has seen serious downturn,”
    Faster growth is likely to be accompanied by a pick-up in inflationary pressures as demand for raw materials hardens and manufacturers recover some degree of pricing power.
    BRIC nations are showing a pattern of growth amid the global financial crisis, and the two emerging economies — India and China have been the most sought after countries for foreign direct investment (FDI)
    World leaders specially from BRIC nations have started debating about whether the dollar will — or should — lose its dominance as the world’s reserve currency considering serious financial crisis in US.
    China’s central bank governor made headlines when he called for a super reserve currency — an idea that was repeated in a People’s Bank of China annual report.
    It is looks that the “almighty dollar” is beginning to weaken in the eyes of the world and losing its status as the world’s reserve currency. There has been talk of the need for a new reserve currency abandoning the dollar and instead putting in place a basket of currencies as world reserve.
    For many decades, the US dollar has been the world’s reserve currency, the one by which all others are measured, and the currency most used for international trade. Over the past six to nine months, as the worldwide recession has deepened, the US Dollar or the ‘greenback’ has been the currency of last resort and has therefore maintained more than its value. However, there are several reasons that may lead to the decline of the greenback.

    China’s call for a global reserve currency to take the place of the dollar has won the support of central bank chiefs in Indonesia, Malaysia and Thailand, who argue it would help curb volatility and foster trade. According to Governor of Bank Indonesia “We need a currency that is stable by volume and value so that world trade and investment can be more stable,” “Trade transactions using one currency that’s dependent on the condition of a single country’s economy is dangerous.”
    The Russian President has been saying for some time that the world should abandon the US dollar as a global reserve currency since its fluctuations tend to harm everyone who uses it for trade or as store of value. OPEC calls the US dollar a worthless piece of paper. Argentina, Cuba, Iran, Iraq and Venezuela have already said “no” to the dollar.
    There is now a rising crescendo of worldwide demand for a thorough and comprehensive overhauling of the international monetary and financial system.
    Looking to the present global financial situation, Renminbi, Chinese currency appears to be next global currency when they allow it to be fully convertible. Indian Rupee may join the basket of international reserve currencies when it is fully convertible.
    The importance of the BRICs — as a source of new demand and as a share of global spending — could increase sharply over the next few decades. As a result, the world might look very different than it does today and sooner than most people expected.
    Continued growth in the BRICs would push up trend growth for the world in the near-term and could see a rapid expansion in the middle-class in these four countries. The appetite for energy and commodities, where the BRICs have been most visible so far, is likely to stay strong with the peak pressures probably felt over the next decade.
    The BRICs presence could also soon begin to be felt more in areas — consumer durables and capital markets — where they have so far been a smaller force. In fact, in each of the power, oil & gas , automobile and capital markets, the BRICs have the potential to be a major source of growth within ten years .
    The Global recession has altered the make up of the top 300 global companies by value with a marked move away from the US and Europe to Asia. Whereas the proportion of North American and European companies fell 8% and 3% respectively, as of 30 June 2009, compared to 31 December 2008, the number of Asian companies has increased 16%. Of these Asian companies, the most dramatic growth has been in Indian companies both in count as well as market capitalization.

    in the coming years the BRIC nations would intensify their economic interaction, especially in the fields of science and technology.
    Though India has vast economic potential, it has fared poorly on productivity.
    In China, productivity has been fuelled over the years by huge investments in education, technology and health. In stark contrast, in India country’s important projects, which have huge externalities for growth, do not get implemented in time, and when they do get finished, they are of a poor quality. The inflated project costs consume scarce resources which could have been better used in other important areas. The poor are disproportionately hurt because of corruption.
    The world respects Indian democracy, its secular values, independent judiciary and free press, but poor governance and buearocratic functioning, pervasive corruption in country tarnishes its image. As the country grows and integrates with the world economy, corruption continues to be an impediment to harnessing the best of technology and resources.
    Dr Manmohan Singh , the present Prime minister of India who is known for his high integrity, honesty who enjoys the highest respect worldwide is of view that Systems and procedures which are opaque, complicated, centralized and discretionary are a fertile breeding ground for the evil of corruption and should be made more transparent, simple, decentralized and less discretionary.
    Good governance, sans corruption, is vital if India is to achieve growth in productivity.
    Since its economic revival in the 1990s, India has become one of the fastest-growing countries in the world. It has posted an average 7% growth rate since 1997, and recorded an 8% growth rate last year. Even though most of India’s economy is not globally competitive, the country is rapidly creating world-class businesses in a few knowledge-based industries, such information technology outsourcing, which is one of the major driving forces behind India’s economic boom.
    Role of Indonesia
    Indonesia’s economy is expected to grow between 5 and 6 percent this year,.”Indonesia’s positive growth will result into more robust investment in coming time..
    Indonesia’s economic growth may accelerate to seven percent (7%) by 2011, signalling the biggest economy in Southeast Asia is inching towards economic parity with the BRICs which would strengthen Indonesia’s case for joining the so-called BRIC comprising the world’s fastest-growing emerging economies: Brazil, Russia, India and China.
    Indonesia will see a significant jump in investment from foreign investors in infrastructure, Power Generation , oil & gas exploration ,telecom sector, and rapid transport system ,
    Indonesia is one of the top two global exporters in coal, natural gas and crude palm oil while developed economies are still struggling with economic slowdown.
    Indonesian thermal coal exports have increased manyfold over the past one decade. As long as China and India can keep their pace in terms of coal demand, Indonesia’s thermal coal market will be leveraged to their electricity demand. Over the last 10 years, thermal coal imports by China and India have grown 22 per cent per annum. Many Indian companies ( Reliance , Tata Power , Adani , Monnet Ispat , Jindal Power , GMR , JSW etc) have ambitious plan for mining project in Indonesia to meet huge requirement of thermal coal for Ultra Mega Power Projects (UMPP) in India. Indian govt is likely to introduce few changes in the new ultra mega power projects (UMPP) policy and accordingly, all future projects of 4,000 MW capacity will have to rely on imported coal and Indonesia will be one of the Country to partly fulfil the requirement .
    The move is aimed at protecting the limited coal resources of the country for providing fuel linkages to small and medium-sized plants.
    While developed economies struggle with the slowdown of demand and declining demographics, Indonesia (together with China and India) could be the consumer market of the future. Similar to China and India, urbanisation is an important driver of Indonesia’s growth
    Indonesia is ready to rise in the world economic hierarchy and take its place alongside China and India.” Indonesia is now perceived as one of new Asian Tigers, even altering the term of BRIC into BRIIC (Brazil, Russia, Indonesia, India, China).
    Whether BRIC will become BRIIC is yet to be seen. Indonesia is the third-fastest growing economy in the region, behind India and China. has passed through the economic crisis with firmness unmatched elsewhere in the region, and indeed, in the world.
    21st century is the century of BRIC’s (Brazil, Russia, India & China) like the 20th century was the century of America. But there was a tremendous financial cataclysm in the early part of that century. There was panic in 1907; during the 1930s and there were also two world wars. There were crises and the growth was never a straight line. Same applies to BRICS also.
    There will not be growth, growth and growth every year without any interruption. Indeed, world has witnessed magnitude of events in 2008 and 2009.One thing as it appears today that for remaining 91-92 years of 21st Century will be dominated by BRIC’s , specially China and India.
    The next summit of BRIC is scheduled to be held in Brazil in 2010, the expectation being that by that time the group will have become more influential in world economic fora.
    Sunil K Kumbhat
    A-9 , Saraswati Nagar,
    Basani Phase-I
    Jodhpur(Rajasthan) India

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