April 20, 2024

Indonesia’s Success Mixes Opportunity With Growth Pains

The glut of idling new cars tells one part of the story: strong growth. The Indonesian economy, the largest in Southeast Asia, grew 6.1 percent last year, and domestic consumption is increasing.

Indonesians bought 286,000 cars in the first four months of this year, according to the Indonesian Automotive Association — 16 percent more than in the period last year — and it can sometimes feel as if they have all congregated in one place.

But the country’s infrastructure has not caught up. A dedicated bus lane relieves some of the pressure from commuters, but heavy rain frequently floods the road. Along the middle of the street, abandoned concrete pylons stand as memorials to a plan to build an urban monorail system, begun in 2004 but left to languish after money troubles and legal disputes among partners.

For businessmen like Stefanus Sulimro Lim, who runs a midsize freight forwarding company, Global Abadi Perkasa, it is a worsening headache. Clogged ports, potholed roads and persistent gridlock mean extra costs in the form of blown truck tires, broken shafts and wasted time.

“About 10 years ago, one truck could go to two places,” Mr. Lim said of work in Jakarta. “Our truck could go to one customer, do their stuff in two or three hours, then we could truck back to the port and do another job, all in the one day.”

These days, he said, trucks must be sent to the port of Jakarta the night before just to get one job done.

Mr. Lim’s frustration contrasts with the enthusiasm of international investors for Indonesia.

Considered only a few years ago as a laggard in the region, Indonesia is fast becoming a darling of financial markets. Foreign investment in the country rose 52 percent in 2010, to $16.2 billion, from the previous year. The credit rating agency Standard Poor’s raised its sovereign debt rating for Indonesia to BB+ last month, becoming the last of the three big agencies to rate the country one peg below investment grade.

The improving grades from the ratings agencies are considered a reflection of sober fiscal management under President Susilo Bambang Yudhoyono, who has overseen falling public debt ratios and growing foreign exchange reserves. The country is widely expected to reach investment grade next year, drawing it closer to emerging market heavyweights like China and India.

But as the attention on Indonesia grows, so does the focus on flaws that, according to analysts, may restrict future growth.

The country, with a population of 240 million, suffers from corruption, its bureaucracy is inefficient, and — most important, economists say — its infrastructure is strained to the limit.

The Indonesian central bank predicts the economy will expand as much as 6.5 percent this year, based on strong domestic consumer demand and booming commodity exports.

But Muhammad Chatib Basri, an economist at the University of Indonesia, said that this was not enough. For Indonesia really to develop, it needs to attract investment in labor-intensive industries, he said, rather than focusing on exporting commodities, like palm oil and coal, which creates relatively few jobs.

“For the short term, it should be O.K.,” Mr. Basri said. “But you cannot rely, for the country, on what’s been happening on the external side. Because one day the commodity price or energy price may collapse, and it’s going to affect us. In my view, the most binding constraint is infrastructure. Because without improvements in infrastructure, I don’t think economic growth of more than 5 percent will be sustainable.”

Across the country, the underpinnings of power and transport networks are fraying. Ports and airports are largely antiquated and inefficient, while frequent electricity shortages cause disruption to homes and businesses.

Gridlock in Jakarta is estimated by the government to cost the economy $1.5 billion a year, through wasted fuel, lost working hours and illness. Plans to improve infrastructure, like a project to complete a series of toll roads across the island of Java by 2014, routinely run into barriers, largely because of the frustrating difficulty of acquiring land.

Article source: http://www.nytimes.com/2011/05/27/business/global/27rupiah.html?partner=rss&emc=rss

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