Randy McDonald (rfmcdpei) wrote,
Randy McDonald

[LINK] Indonesia a BRIC economy?

Thanks to Edward Hugh for linking to this Bloomberg article arguing that Indonesia should be included among the ranks of the BRIC economies.

Indonesia’s economic growth may accelerate to 7 percent starting in 2011, providing a case for its inclusion in the so-called BRIC economies along with Brazil, Russia, India and China, Morgan Stanley said.

Political stability and buoyant domestic demand will help boost expansion in the $433 billion economy, Morgan Stanley said in a report dated June 12 that compares Indonesia with India. President Susilo Bambang Yudhoyono is expected to win the July 8 elections, polls show.

“What this means for the investor community is that they need to look at this asset class more seriously,” Chetan Ahya, a Singapore-based economist at Morgan Stanley, said in an interview today. Political stability, improved government finances and “a natural advantage from demography and commodity resources are likely to unleash Indonesia’s growth potential,” he said.

Southeast Asia’s largest economy may grow 60 percent in the next five years to $800 billion due to a stable administration, lower capital costs and a government plan to spend as much as $34 billion to build roads, ports and power plants by 2017, Morgan Stanley said. Leaders of the nations known as BRIC will meet this week in the Russian city of Yekaterinburg.

Two analysts at Seeking Alpha disagree.

Indonesia, technically fails to meet our definition of a Continental-sized country (less than 1 million square miles spread out on numerous islands), although it has more than the requisite 100 million people. In this regard, it is similar to Japan, which is similarly contained. But its educational level and overall productivity are far below Japan's, as well as the BRIC countries.

India, Russia and Brazil together have a GDP as large as China's. Meanwhile, Indonesia's is about a third of the smallest (Brazil's). It is also on the edge, rather than center, of Asia, where three of the other countries, (China, India, Russia) meet. Geographically and economically, Indonesia is far less strategic than the others.

Another factor is that the Indonesian stock market is far less transparent than the others. It has far fewer American Depositary Receipts (ADRs), which means that both liquidity and transparency of its markets are decidedly inferior to the others.

This analysis has some issues--Indonesian waters play a crucial role in world shipping, and how strategically located is Brazil, while the whole point of the Bloomberg article seems to be that Indonesia might qualify for BRIC classification in the early 2010s.

Tags: brazil, china, economics, india, indonesia, links, russia, southeast asia
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