Time for Goldman to Add Indonesiato the BRICs
Commentary by William Pesek
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=a4WdXv9R98KQ
May 28 (Bloomberg) -- Muhammad
Lutfi dreams with the BRICs. The head of the Indonesian Investment
Coordination Board still scratches his head over why more money isn't rushing
into Southeast Asia's biggest economy. Why, he asks, do Brazil, Russia,
Indiaand China, the so-called BRICs, get more attention?
``I was shocked a few years back to see that Indonesiawas not a BRIC,'' Lutfi
said on May 22 at a
EuroMoney conference in Bali. ``It should be.''
Lutfi's views have a rose-colored-glasses
feel that can seem excessive, yet the point is worth considering.
Economist Jim
O'Neill of Goldman Sachs Group Inc. created a sensation when he coined the
acronym in 2001. It referred to the four countries that would join the U.S.and
Japanas the biggest economies by 2050. Another
widely cited report, ``Dreaming With BRICs,'' followed in 2003.
Events in Yekaterinburg, Russia, this month show how much the BRICs concept
has taken off. Booming growth is forging a sort of political alliance. On May
16, foreign ministers from Brasilia, Moscow, New Delhiand Beijingmet for the
first time outside the venue of
the United Nations.
The BRICs summit was a milestone for the
developing world and served as a reminder of the coming multipolar global
economy -- one that's less reliant on the U.S.
Global Shakeup
The $13 trillion U.S.economy still dominates the global system.
Yet the rise of the BRICs is shaking up the international economy as perhaps
never before and driving investment trends.
In 2007, the combined gross domestic product
of the BRICs accounted for 12 percent of global growth, up from 8 percent in
2000, according to the International
Monetary Fund. At the time the BRICs held their debut summit, their stocks
had risen 70 percent in the previous two years, versus 42 percent in emerging
markets overall.
Now investors are looking for the next
generation of growth stars -- the next BRICs. Goldman's list includes
Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, the Philippines,
South Korea, Turkeyand Vietnam.
A BRIC nation is one with the potential to
become a vital economy and turn that promise into reality. The criterion
includes macroeconomic stability, political maturity, openness of trade and
investment policies, and
quality of education.
Indonesia's Promise
O'Neill says that if he were to sit down
tomorrow and revise the BRICs, Indonesiawould fare reasonably well. ``Of them,
we would
rate Mexicoas closer to a BRIC status than Indonesia, but it would not be far
behind.''
That should be a message for Indonesian
officials. The same may be true for investors. For all the excitement over
Vietnam, you don't see Indonesian stocks down 55
percent this year like the Ho Chi Minh City Stock Exchange.
``This market is underreported on by the
media from a global perspective and rather misunderstood,'' says Jack
Lin, Hong Kong- based regional managing director for Franklin Templeton
Investments.
Adds Mira
Arifin, who heads Indonesia coverage for Lehman Brothers Holdings Inc.:
``It's important to remember how far Indonesia has come in the last 10 years --
political stability, economic stability and investors are returning.''
Both Lin and Arifin stress Indonesiaisn't an easy place in which to invest. It
requires patience, disciplined research and a strong stomach given the lack of
legal protection, the multitude of regional taxes and fickle politicians.
Poverty and Corruption
Surging food and energy prices complicate
things further. About 37 million of Indonesia's 243 million people survive on
$18 a
month. Within the world's fourth-most-populous nation is a population the size
of Poland's living on about 60 U.S. cents a day at a
time when inflation (9 percent) is growing faster than GDP (6.3 percent).
That factoid alone would scare away many
investors. And while the government is working to stamp out corruption, far
more needs to be done.
Indonesia's regulatory regime, bureaucracy and legal
system need considerable work. With 29 percent of the population under the age
of 15, investing more in education is critical. So is spreading the benefits of
growth.
Yet it's Indonesia's potential and vast natural resources that
are attracting interest from the likes of Reliance Power Ltd., the energy
company controlled by billionaire Anil
Ambani, and ArcelorMittal, the world's largest steelmaker.
About Implementation
ArcelorMittal Chief Executive Officer Lakshmi
Mittal, listed by Forbes magazine as the world's fourth-richest man, plans
to spend as much as $10 billion on projects in Indonesia. China Shenhua Energy
Co., China's largest coal producer, also is
considering opportunities, as are Kuwait Energy Co. and Japan's Mitsubishi
Corp.
``Indonesiaknows where it wants to be, and investors
know where they want it to go,'' says James
Bryson, Jakarta-based director at HB Capital Indonesia. ``The issue is
implementation.''
President Susilo
Bambang Yudhoyono announced on May 26 that Indonesiais offering about 200
investment projects
valued at almost $19 billion. It's vital that officials continue to improve the
economy and increase transparency so that investors don't regret it.
One payoff will be a seat at BRIC summits. A
more important dividend is one of the world's most promising economies finally
reaching its potential. Otherwise, Indonesiacan keep dreaming.
(William
Pesek is a Bloomberg News columnist. The opinions expressed are his own.)
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