Nassim Nicholas Taleb published a book recently called The Black Swan. This New York Times bestseller by the prominent literary essayist explores the emergence of highly improbable world events. He calls them black swans.
Astonishing success of Google, Sept. 11 and the recent stock market crashes are all black swans. Consider another, or one that has the potential to be one: Indonesia.
Bell-curve predictability would brush this aside.
The violence of 1998 and the turmoil of the post-Soeharto era has been etched indelibly into the memory of the world. For many, the odds of Indonesia’s blood-checkered past recurring are large.
But the reality is the country has changed. Today, Indonesia enjoys relative peace and economic development, and is increasingly being compared to middle-income developing nations like Brazil, India and Mexico.
A number of indicators point to a greater sense of normalcy.
Indonesia remains structurally stable, the administration is moderate, and the pro-reform leadership is likely to remain in place after the 2009 elections.
Fears of disintegrasi Indonesia is a thing of the past. There is no evidence today that active centrifugal forces can bring about the country’s “Balkanization”.
And Indonesia is the only country in the region that has bucked the trend of a democracy in trouble. That is combined with what are regarded as a free press and impartial courts, crucial to any vigorous democracy.
Politics cannot but help carry a weight of significance. But economics remain the principal driver in the grand scheme.
As the world heads into a deep economic winter, Indonesia appears to be riding out the storm. Certainly the slump in the stock market and the pronounced weakness of the rupiah shows Indonesia is not immune.
But for so long an underrated economy, it seems far more resilient than other ASEAN countries.
One reason is that it relies less on exports, which contribute just 12 percent to the country’s GDP.
Private consumption is strong and government spending looks set to rise.
Much of what has been accomplished thus far has been a result of economic management.
The Yudhoyono administration has maintained tight fiscal discipline and focused on debt reduction. As a result, Indonesia has a healthy balance sheet with US$52 billion in reserves and a government debt of less than 35 percent of GDP, compared to 77 percent of the GDP in 2001.
This is the lowest among ASEAN countries.
Jakarta’s policy is grounded on the assumption that declining commodity prices and slowing global demand will eventually ease inflationary pressure. If inflation is controlled, the central bank will have greater maneuverability in reducing interest rates.
So far, Bank Indonesia has kept interest rates on hold in an effort to shore up the rupiah despite lower inflation last month. With the BI rate lowered to 8.75 percent on Wednesday, Indonesia offers a healthy 8.50 percentage-point premium over the U.S. Fed funds rate, which should help maintain confidence.
Jakarta has also cut gasoline prices by 8 percent to ease inflationary pressures and reduce the drag on growth.
The Indonesian economy has grown at an average of about six percent on a quarterly basis since the end of 2006. The government is targeting growth of 6.4 percent for 2008.
Some believe the growth rate will be lower — between 4 to 5.5 percent — but still significantly higher than any other ASEAN country.
The crystal ball is not all rosy, though. We still need to clean house in several areas.
Archaic labor laws are reducing Indonesia’s attraction as a center for labor-intensive manufacturing.
Judicial corruption means businesses cannot take the sanctity of contracts for granted.
Indonesia’s anti-corruption watchdog has been making headlines with a spate of high-profile investigations.
The fact remains, however, that Indonesia is one of the world’s most corrupt nations. It ranks 143rd on Transparency International’s global corruption index, level with Russia, Gambia and Togo.
The benefits of macroeconomic growth have not trickled down. Despite Jakarta’s economic vitality and the booming growth in other big cities, much of Indonesia remains poor.
Some 150 million Indonesians do not have access to piped water. The country has also one of the region’s worst figures for maternal and infant mortality.
All these reinforce perceptions that Indonesia is still stuck in a rut. But we need to give the country its due worth by taking a long-term view.
Consider the fact that Indonesia has a $420 billion economy. If it grows at 6-7 percent in real terms, and 13-14 percent in nominal terms, then it is looking at an economy worth $5-6 trillion in 20 years’ time — the size of the Japanese economy.
There is enough wealth creation here to ensure there will be some degree of refinement in the political process.
Increasingly, the wealthy in the country are taking ownership of public services. This is more good than bad. It fosters better policy making and implementation with respect to wealth distribution.
This can only lead to better education, healthcare, and infrastructure. All this will multiply economic growth.
Certainly fighting rampant corruption and revising labor laws will help spur growth. Infrastructure development is also key.
One of the reasons for China’s growth over the past 20 years has been massive spending in infrastructure. And it is not over. Over the next two years, China will spend more than $260 billion on highways, bridges, ports and airports.
Land acquisition reform, a large dedicated budget and single-minded government focus could set the stage for an unprecedented surge in infrastructure development in Indonesia.
Incentivizing the private sector to participate in this revolution could attract additional capital and allow for better management.
Net foreign direct investment (FDI) in Indonesia was $1.1 billion in 2007, which stands at just 0.3 percent of GDP. This compares to $121.4 billion in China, or 3.7 percent of GDP. In India, net FDI was 1.4 percent of GDP, Thailand 3.2 percent, Singapore 7.3 percent, and Vietnam 9.3 percent.
Singapore transformed itself from a swampy Third World seaport into a First World financial dynamo in 30 years. In 1965, the odds were stacked against it.
With the passage of time, Indonesia might also well surprise the world with the impossible: to be a black swan.
The writer is Chairman of PT Ancora International.
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