Middle Income Developing Country

Mar 14th, 2008, in Business & Economy, by

Indonesia is not a poor country and is one of the more appealing destinations for foreign investment.

Vice president Jusuf Kalla says that now Indonesian per capita income has reached $2,000 Indonesia can no longer be considered a developing, poor country, but rather a middle income developing country.

Since the 1997 economic crisis Kalla said per capita income had risen four-fold. antara

Meanwhile according to an AT Kearney study of the top 25 most attractive investment destinations in the world Indonesia ranks 21st. The rankings for 2007, based on a survey of 1000 CEO's around the world:

  1. China
  2. India
  3. United States
  4. United Kingdom
  5. Hong Kong
  6. Brazil
  7. Singapore
  8. The United Arab Emirates
  9. Russia
  10. Germany
  11. Australia
  12. Vietnam
  13. France
  14. Canada
  15. Japan
  16. Malaysia
  17. Other Gulf States
  18. South Africa
  19. Mexico
  20. Turkey
  21. Indonesia
  22. Poland
  23. Central Asian States
  24. South Korea
  25. Czech Republic

In the 2006 list Indonesia, and Vietnam and Malaysia, did not rank in the top 25. atkearney

Luky Eko Wuryanto of the Investment Board (Investasi Badan Koordinasi Penanaman Modal (BKPM)) said this showed Indonesia's investment competitiveness was continuing to improve. antara


12 Comments on “Middle Income Developing Country”

  1. avatar sputjam says:

    Investment destination could mean nice places for funds to invest and not neccesarily long term brick and mortar investments.
    That will explain why india is at no.2. as nobody with a right frame of mind would like to invest in factories and busnesses in india due to bereaucracy. But investment fund will find the place exciting as its stock market and property are increasing in value.
    Jusuf Kalla’s statement that income had increased four fold could mean in USD terms and not neccesarily in IDR.(USD was expensive in 1997 and presently, it’s value is decreasing).
    By not investing in infrastructure such as pan java expressway, sumatra – java bridge, south sumatra- riau island (batam and bintan) expressway in an aggressive manner, the level of long term investors will not increasi significantly, despite indonesia is situated in or near major trade routes and abundance of labour.

  2. avatar Murphy says:

    Foreign Investment is just another form of foreign debt. You still have to pay interest to the investor in the form of profit. What really matters is how you spend the money.

    With all the hard currencies coming in from palm oil, coal, and other commodity exports, Indonesia should stop worrying about foreign investment and start working on domestic investment instead. Domestic investors keep their profit in Indonesia to be taxed by Indonesian. Foreign investors send their profit back to the homeland.

    Indonesia’s problem now is not about lack of money but more of how to keep the money in the country and spend it wisely.

    The government must make it difficult for businessmen to do transfer pricing. Many big corporations in Indonesia setup their headquarter in Singapore and assign their Indonesian operation as “toll manufacturer” or “toll distributor”. Big chunk of profit now is channeled to bank accounts in Singapore rather than Jakarta. True, it’s because the Singapore tax is very low (almost non-existant if you can work out all the incentives there). But that also means a lot of the saving required for investment is stored in Singapore rather than in Indonesia. Indonesia is bleeding money to Singapore and at the same time hail the opportunistic Singapore investment as some kind of economic savior.

    And then all of this palm oil, coal, natural gas, coffee, cocoa money. How does the private sector, the government spend the windfall?

    Infrastructure for one. More power plants, railways, ports, airports, expressways. Keep businessmen happy. Keep it corruption free and things will go well.

    The happy businessmen should buy more production machine, build more plants. Stop spending money on real estate (that’s what, some say, accounts for 80% of Indonesia current capital formation). Indonesia has enough skyscrapers and shopping malls, thank you.

    The PRC’s GDP per capita is raising very fast. Very soon the factories in the eastern coast will stop producing cheap goods because of high labour cost. Grab the opportunity. Don’t let them move to India, Bangladesh or Vietnam. Indonesia missed the first train. Don’t miss the next one.

    Spend money on education and health. Happy peasants equal stable government equal good business environment.

    And for god sake could the government set few million dollars of state budget to have every MP in Senayan employs their own legal/economic advisors? Those idiots sitting in the parliament should actually write proper law rather than debating stupid matters like whether the president showed up when he was invited.

  3. avatar sputjam says:

    Murphy statement that Indonesian money being parked in singapore(or elsewhere) is spot on. They should do what germany and other european govenrment did by forcing luxembourg to disclose tax evaders with accounts there.
    Foreign plantation owner give very little back to host country, but host country must allocate huge tracts of land for this purpose. Can’t the agriculture department create some knd of commune farming whereby locals get to develope the plantation themselves but managed by farming/agriculture authorities with some financial assistance from the central government?

    As for windfall from commodity prices for indonesian, there is no such thing as probably all plantation/mine owners prefer their money to be paid to their overseas bank account, leaving indonesia with nothing but diminishing assets. Indonesia is being raped by investors (both local and foreign), and businessmen(locals and foreign) do not have faith in keeping money domestically. That is the whole issue. How to solve it, i do not know.

  4. avatar Purba Negoro says:

    Sputjam and Murphy incredibly enlightened and intelligent comments Very pleasant vive le difference-
    Intelligent comment suits you both far better.

    Murphy hits the nail right on the head- though I’d add the problem here in Indonesia is easy and affordable access to capital. I spoke with te CFO of Caroma Bathroom products in Australia 2 years back and he stated the problem in Australia in terms of comeptition with China is not actually Union wages- but this same cheap, easy access to capital.

    Since the bank restructuring- it’s far more difficult and due to more rigorous assessments to obtain a loan (incidentally at higher rates than Singapore’s pet DBS).
    Fundamentally- the Indonesian economy especially its’ structure is sound and superior, structurally and fundamentally to India and China. With CHina- there’s no transparency- we have no inkling of their true figures and have to rely on government vetted press releases.
    However, mark my words, once obstacles or greater governmental concessions are requested or indeed Chinese governmental provocation or aggression- however slight (counter to US interest of course- ie Iran, Sudan) – US and Japan will vote with their wallets en masse and return to ASEAN. Why? Less risky, historically proven to be safe for Japanese-US investment and almost devoid of any aspirations for super-status por G8 peer status (politico-militarily).

    An interesting point regarding India- Morgan Stanly projects India’s economy only ever to reach optimally 65% of China’s.

    The most obvious reason is stability and accessibility- two main criteria which Indoensa had under Suharto government.
    By this I mean that the Communists will suppress any and all wage growth among the manufacture- employed demographic.
    Furthermore, although Chinese bureaucracy may be riddled with corruption it is stable and known to be investment friendly and – it’s far smoother sailing as when one consults with the relevant authorities, they have conveniently streamlined a pan-bureau bribe into a one off (albeit very large) fee.

    Indonesia should duplicate China’s clever institutionalization and semi-legitimation of bribery by disguising it as a one off ‘fee’.
    What most investors I have spoken to of late profess is the most annoying and expensive obstacle to investing in Indonesia is not actually the corruption itself- but no end to the outstretched open-palms of Officialdom and bureaucracy.

    Previously under Suharto- statistically our longest span of continual foreign investment there was of course bribery- but it was far more streamlined and once the big sum was paid- never again where they bothered by these bureaucrats.

    I could bang on for hourse- but I support Kalla’s bravery in many of his comments- though as someone who works occasionally with the absolute poor- I would contend his assertion.

    Since 1998- there are now more 10+ million (no 55 million ) people living on less than USD$1 per day- Suharto may have been a baddy- but he did get results.

  5. avatar Achmad Sudarsono says:

    Purba,

    * Do you think you could make your point in, say, 300 words or less ?

    Since the bank restructuring- it’s far more difficult and due to more rigorous assessments to obtain a loan (incidentally at higher rates than Singapore’s pet DBS).
    F

    What is this – a stand up comedy routine ? Seen the latest non-performing loan figures ?

    Fundamentally- the Indonesian economy especially its’ structure is sound and superior, structurally and fundamentally to India and China. With CHina- there’s no transparency- we have no inkling of their true figures and have to rely on government vetted press releases.

    More comedy. If China is opaque, well how would you know ? Hate to break this to you, sunshine, but foreign capital ain’t exactly making a beeline for our shores.

    Now this’s the way to do post. Short. Sweet. Clear.

  6. avatar Purba Negoro says:

    Achmad:
    Have you seen the ethnicity of the stinking thief who granted those dodgy loans?

    Chinese. Musuh pribumi.

  7. avatar Achmad Sudarsono says:

    Whatever, Purba. Just how did a Javanese get a Batak name anyway ?

  8. avatar sputjam says:

    Maybe one way to get Indonesia on investor’s map again is to build a highway/bridge linking Batam/Bintan all the way to Jakarta, via Jambi and Palembang. That will provide land mass needed for Bintan/batam to be a successful port, create many new industrial zones outside jakarta, which is overcrowded.
    Riau islands are suitable for this job.
    It is not viable for jakarta to control a huge bulk of indonesian business. After all this is a country of 200 million people. wealth must be spread across the country. Only by encourging industries and businesses with good communications lines will this be a reality.
    Secondly, Investors confidence in indonesia is low. So what they do is pump the money into singapore, and let singapore managers (who can barely speak malay) invest in indonesia. Investors must be encouraged to invest directly into indonesia.
    Coming back to singapore, there are now 40 private banking institutions there catering for the rich, including ING/UBS/CITI group etc. I have no doubt that many of the rich in asia are stashing their loot there to escape taxation in their homeland. Together with bank secrecy laws. the rich and famous are well catered for over there. It makes sense for indonesia to join brunei in pegging their currency to singapore dollars. This will ensure IDR stability, which is vital to gain investors confidence for long term nvestment.

  9. avatar Dylan says:

    People have been forgetting the simplest criteria for a developing country and is social welfare. There is no correlation between foreign investment and economic development.

    Foreign investment is a factor of growth, part of which is to speed up the real GDP. This article is deceiving people. Indonesia is already a hot spot for investment since the Soeharto era, it is a hot spot for economic activity to run. The only thing that has been slowing it down is the political imbalances.

    People… it said according to “AT Kearney study” – do you just trust an information like that? Oh AT Kearney study sounds cool, sounds intellectual, hmmmm here is my statement… Walah!

    Please Indonesia is a rain forest of gold, people all over the world have been trying to access it, if only I can wake up the people living in this forest, this country will no longer be a sleeping giant… so social welfare is the key.

  10. avatar MC says:

    Interesting discussion.

    I am from Malaysia and opening a business in Indonesia makes good sense to me; although China maybe the magnet now for whatever imaginable.

    With its 250 mil strong population, it is indeed a sleeping giant lying within SEA.

    It is behind in its socio-economy at the moment, but with its freer political environment, post – Suharto, its going to be enormous economy in 5-10 years, surely greater than all other SEA countries combined.

    The key is domestic consumption; USD2000 will get you a long way if most of this cash is spent on growing local businesses, SMI, SME. Having high FDI is meaningless if most of the fund flows back to foreign banks, and paying a minimal tax in the process.

  11. avatar Tony says:

    After reading everyone’s comments it seems like the real issue is something I see in my work everyday:

    INDONESIA IS SELLING ITS FUTURE BY EXPORTING ALL OF ITS NATURAL RESOURCES TO CHINA.

    I realize that there is not enough manufacturing to consume all of Indonesia’s resources but if these commodities are continually sent to China and elsewhere, Indonesia will never have a future. You all may not like Purba’s comments but they have a lot of truth to them.

    The exploitation of natural resources isn’t bad if you invest the money into infrastructure and education but Indonesia invests in neither. The day may come when there are no more resources to take and at that point you may see a huge outward migration of Chinese to other lands as Indonesia has nothing left to offer.

  12. avatar Purba Negoro says:

    Achmad you’re a dimwit.
    Purba is Javanese for Thunder. Read a book please, one without pop-ups or pictures.

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