Bush Legacy Frees Up Indonesia; EMERGING MARKETS Development Economist Terry Lacey Looks at How Indonesia May Play a Key Role in Leading the Muslim World towards Economic Recovery and Help Minimise the Impact of Global Recession

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Byline: Terry Lacey

The crisis of confidence in the Western banking and financial system comes during the dying days of the most unpopular American Presidency in living memory. Financial mismanagement and weak regulatory frameworks have devastated the United States economy making the rich richer and the poor poorer. Two million Americans may lose their homes. Millions in the US and Europe will lose their jobs.

Yet the devastating legacy of the Bush Presidency leaves open great opportunities for Indonesia, the Muslim world and the developing countries of the southern hemisphere.

Indonesia can play a key role in leading the Muslim world towards economic recovery, and help minimise the impact of global recession - first by managing its national economy to maintain growth, demand, imports and exports. The nominal Gross Domestic Product for 2009 is projected at EUR547 billion (pounds 365 billion).

Indonesia is already in the top 20 economies of the world, overtaking that of Belgium and Sweden, and will soon overtake Turkey, the Netherlands and Austria. Factors such as its enormous size, resources and population come into play, and it is a strong candidate to join the top ten economies in the world within two decades.

Investment is still coming from the US and EU (including eastern European), increasingly from the BRIC countries of Brazil, Russia, India and China and also from APEC countries like Canada, Japan, Korea, Taiwan and from ASEAN member states - Brunei, Malaysia, Philippines, Singapore, Thailand. Investment is also coming in greater volume from the Gulf States, Saudi Arabia, Israel and South Africa.

Indonesia can also help lead Muslim economies by using its economic size and prestige as a member of the United Nations Security Council to join Brazil, Russia, India, China and southern countries to bring about changes in policies and in the balance of power in world organisations dealing with trade, finance and development, especially the WorldBank, the International Monetary Fund (IMF) and World Trade Organisation (WTO).

Indonesia has major reservations about the IMF following its own experience in 1998. German Finance Minister Peer Steinbrueck said that the world should not slip into creating a shadow world economic government run by an inner IMF council.

Muslim countries collectively represent an increasingly important source of capital while Western liquidity has partly dried up. Muslim economies represent important investment sources as well as investment destinations. The collective size of Muslim economies represents significant demand for Western goods and services, relatively unaffected by the recession in the West.

Indonesia can still deploy export credits, sovereign funds, Islamic finance and other non-traditional financial sources, such as environmental funds and carbon credits. Despite the global downturn Indonesia is still pulling in some bank finance. AEUR140million syndicated loan for Excel comindo for telecommunications expansion was announced recently. Low cost airline Lion Air are buying 12 Boeing 737 planes even though the required local cash contribution for the last four has risen to 30 per cent. …