The bare-chested man fishing for catfish in the filthy grey canal which runs parallel to the Hati-Hati busway in downtown Jakarta is at the centre of South Asia’s economic miracle.
Although much of Indonesia’s resource-rich economy, growing by 6.5 per cent a year and fuelled by the demands of a 240m-strong, youthful and fast-increasing population, is self sufficient, there are also international dimensions to the country’s success.
Visitors to the traffic-choked high-rise capital are amazed at the lines of motorcycles – many carrying whole families – which weave expertly in and out of fleets of bluebird-branded taxis and Japanese cars, most with barely a scratch on them.
Indonesians buy 8m motorbikes every year, with easily obtained credit serviced by renting out the vehicles for taxi services, which ferry bankers and businessmen through Jakarta’s clogged arteries. In fact, demand for vehicles and automotive parts from the 17,500 island archipelago are also key stimulants for Japanese industry.
Long-term, the country, both in terms of a base for distribution for financial products and private banking services and also as a destination for investment, is up there with China and India among the plans of institutions wishing to deepen their Far Eastern footprints.
Although the memories of the Asian financial crisis are still raw in the minds of many Indonesians, the country, which has finally entered a prolonged period of political stability, is preparing itself for the danger of any contagion from eurozone instability.
A low-profile $3.5bn (€2.8bn) “emergency loan” from Asian and global financial institutions is seen by Indonesian bankers not as a sign of disasters to come, but as an anchor for stability and a show of faith from the country’s trading partners, that they want to make sure their friends continue to prosper. Locals also point out family ties of President Barak Obama to the culturally vibrant and colourful country, where Batik shirts can be worn to business and political meetings without shame.
Corruption is inevitably a problem in Indonesia, as it is in all emerging markets, but its corporate governance should not be compared to the US or European markets. Once you pitch its clan-based company ownership mentality and unpredictable legal system against other emerging Asian nations such as India, Vietnam and China, it no longer looks so bad.
While Jakarta is being earmarked as a future market for growth by private banks and asset managers, it is probably fourth in line among current allocations to South Asia, behind Singapore, Thailand and the Philippines, which all offer better valuations, Singapore in particular.
To the North, China is also currently seen as a major buying opportunity by several banks, trying to persuade their clients to switch out of bonds as safe havens begin to dwindle and negative long-term yields become the norm. They have a tough sell on their hands however, with the majority of recent flows headed for fixed income, in traditional as well as hedge funds.
Private banks are trying to tell their clients, in the gentlest possible way, that now is really the time to buy equities, when it appears that everything is collapsing and both valuations and prices are cheap. It is not the time to give up, batten down the hatches and hope for the best, but to make some well thought-out active bets to boost portfolios.
