Who wants to be the next Indonesia?

Posted at 02/06/13 9:35 AM

Women walk at Plaza Senayan shopping mall in Jakarta, Indonesia on February 4, 2013. Photo by Beawiharta, Reuters

MANILA, Philippines - So Indonesia GDP is out and it’s lower than expected and lower than the Philippines. Which makes me wonder about our aspiration to be “the next Indonesia.”

Here’s how we did:

GDP GROWTH (in %) 2011 2012
INDONESIA 6.5 6.2 (Less than expected)
PHILIPPINES 3.9 6.6 (More than expected)

This means we were second fastest-growing major economy in East Asia last year, right after China.


2012 GDP GROWTH (in %)
CHINA 7.8%
INDIA 5.9% (EST.)
JAPAN 1.0%

Over the past few years, Indonesia has been an inspiration for Filipinos. Or the target of our envy. We marveled at how it went from ground zero of the Asian financial crisis to Southeast Asia's fastest-growing economy, and wished we could do the same.

The commodities boom helped the commodity-rich country, as did foreign direct investment, which still dwarfs ours.



At the Philippine GDP briefing last week, NEDA Director-General Arsenio Balisacan said if there is any country we emulate, it is Indonesia. Because Indonesia has shown what it takes to have strong growth on a long-term basis.

Wannabe and Co-Star

But sometime last year, wannabe became co-star. More and more people started to talk about Indonesia and the Philippines in the same breath. Including well-known Morgan Stanley economist Ruchir Sharma, author of Breakout Nations, who put them in a group nicknamed TIP. And the T isn’t Thailand, it’s Turkey. So this isn’t a group of Southeast Asian countries but economies that met criteria higher than just geography.

And now, the Philippines is the star. It’s not just GDP. Check out the currency. The peso rose 7% last year and the Bangko Sentral is trying to weaken it. The rupiah fell 6%, in the year Indonesia made it to investment grade, and the central bank there is expected to try to strengthen it.

Reuters says Indonesian growth is slowing because of weak exports, lack of gov't infra spending, a drop in public spending and hiring and bureaucracy.

"Each year, President Susilo Bambang Yudhoyono promises to improve bureaucracy and spend billions on infrastructure to overhaul the country's strained roads, ports and airports, but little change has been seen so far," Reuters said.

Some critics say the same thing about President Aquino. But he's been in office just 2-1/2 years. SBY has been there for eight.

We should be saying his anti-corruption stance assured more investors of a level playing field, bearing FDI fruit, in part in terms of their investment in the PPPs he awarded as part of the infrastructure upgrade that made it easy and profitable for everyone to do business in the Philippines.

Not “just” more fun.

Debt-Rating Glow

The Philippines is basking in some kind of pre-investment grade glow. Even now, this has drawn foreign funds to our stock and bond markets, making Philippine stocks one of the most expensive in Asia and strengthening the peso to the point that it’s hurting dollar-earners like OFWs, exporters and BPOs. What happens when we get the rating upgrade?

"The challenge is going to be bigger especially if we get an investment-grade rating," said Jun Neri, economist at Bank of the Philippine Islands. "I cannot imagine how much flows will be coming in. The BSP will have to come up with something even more innovative to be able to manage the inflows. Because it can cause an asset bubble and inflationary pressures."

When too much money comes in compared to what a country can produce -- usually in manufacturing, in factories made more accessible by the right infra -- the money just bids up the prices of the few listed stocks, as well as bonds and the currency and property. People stay willing to pay ever more because, based on what they’ve observed for a couple of years, they think prices will go ever higher. Until prices are far from true value, just waiting for for the bubble -- in stocks or property, e.g. -- to be burst.

If we’re not careful, this could be said of us:

The country looked on track to take its place as an Asian tiger economy. The nation boasts a large youthful population, a very high literacy rate, abundant natural resources, agricultural self-sufficiency, a stretch of coastline to rival California’s or Thailand’s, and a strategic position amid the trade routes of the Pacific.
The country’s creaky institutions couldn’t absorb all the funds, leading to a textbook instance of what economists call capital misallocation.
At first, the cash went to building what seemed like useful infrastructure. Then it flowed into apartment buildings.

OK, I didn’t write that about the Philippines gone bad. I paraphrased that from a Daily Beast story about another recent Asian investment darling.

Vietnam, in short, has gone from global investment darling to poster child for mismanagement. Too much money flowed into the country.

“Its rulers were neither prepared nor competent to handle the huge inrush of foreign capital in the last decade,” according to Sharma.

Indonesia na lang nga!