RI seeking to join world`s major economies club

Antara News, Thursday, December 30, 2010

Bogor, West Java (ANTARA News) - Indonesia is expecting to become one of the world`s ten biggest economies in 2025 with its gross domestic product expected to reach US$3.7 to 4.7 trillion and the per capita income at US$12,000.

The country`s chief economic minister, Hatta Rajasa, said on the sidelines of a limited cabinet meeting on economy led by President Susilo Bambang Yudhoyono at the presidential palace here on Thursday he believed the target could be achieved because right now Indonesia has already been the world`s 16th biggest economy.

He said Indonesia even hoped it could become the sixth biggest in 2050.

"We will push Indonesia to become an advanced country and a world power," he said.

For that he said the government had held the meeting to design a road map to speed up and expand the country`s economy that would combine regional and sectoral powers.

"What we are discussing is focussing the master plan of the road map on targets and goals of the Indonesian vision until 2025," he said.

In the master plan the country`s economic potentials are mapped into six integrated economic clusters or corridors to make natural resources in each of the clusters exploitable fully.

The paradigm for natural resource exploitation has also been changed so that industrial developement would no longer depend upon extractive industries but manufacturing based on natural resources to increase the added value for Indonesia.

Based on the policy, he believed, regional income would jump four to six times higher than now.

"We have already identified all the corridors, So there won`t be no region that we would not turn into a new growth area based on natural resources. Natural resources will be turned into foreign exchange income. We will change natural resources into growth," he said.

As an example he said the Sumatra corridor which would be connected with Java to become a palmoil and metal mineral industrial clusters with the availability of infrastructure that connects the two islands through the Sunda Strait bridge.

He said the idea of economic development acceleration and expansion based on a corridor system that connects regional and sectoral powers was expected to be started as of 2011.

In view of that he said the master plan was expected to be finished soon and issued through a presidential decree in 2011.

He said the presidential decrees are inseparable from Law Number 17 of 2008 on national long-term development plans and therefore the masterplan would not change when the national leadership undergoes changes.

"That is the essence of what we were discussing," he said.

He said funding for the economic development would be from public-private partnership from home and abroad.

He said the investment portion based on the scheme would comprise more than 70 percent of the funding.

As of now, he said, the government has already prepared an investment climate to boost investors` optimism by improving the regulations in various fields including taxation and land ownership.

"So, it will be clear for us what we are going to build based upon the document, howmuch the cost would be. We are still discussing it and after it is done the results will be put into a single solid document," he said.

Indonesia named one of top ten global investment targets

The Jakarta Post, Jakarta | Thu, 09/16/2010 1:46 PM

Indonesia has been identified as one of the top markets for global investors, according to new research published by UK Trade & Investment.

The ‘Great Expectations: Doing business in emerging markets’ report offers new insights from international investors about which markets they see as being the global growth engines of the future.

The report is based on a survey of more than 520 global executives from every sector. All respondents are already doing business in emerging markets or plan to do so in the next two years.

“The balance of global power is shifting and this is recognised in UK Trade & Investment’s research. Markets such as Vietnam, Indonesia, Mexico, Argentina, etc is tipped to be one of the global growth engines in the coming decades. UK firms are using their expertise to help promote that growth,” the UK Business Secretary Vince Cable said, while launching the new research in London.

Meawnhile, Deputy Head of Mission of British Embassy Jakarta Rebecca Razavi said he was very pleased to hear that Indonesia was named as one of the top markets for global investors this year.

"As the largest economy in SE Asia and as a member of G20, Indonesia has an increasingly important role on the world stage, and is a key trade and investment partner for the UK. This encouraging report by the UK Trade and Investment is another example of the positive view global investors have of Indonesia's potential to grow stronger as an emerging market in this region. And the UK is fully committed to work with the Indonesian government to help make that happen," Razavi said as quoted by the British embassy in Jakarta website

Key findings include: 

• Emerging markets are viewed as sources of new consumer demand. 76% of investors see emerging markets as a source of new business growth.
• Only one quarter of companies intend to rely on their existing products and services in emerging markets. Most companies intend to customise their offerings for new markets.
• Indonesia has been selected as number two investment destination, beyond the BRICs, for 2010.
• The top three markets for investors in the next two years are China (20%), Vietnam (19%), India (18%).
• 71% of respondents agreed that emerging markets beyond the BRIC countries collectively offer an opportunity too big to ignore.
• Companies are now prioritising a range of other countries alongside their well-established operations in the BRIC countries.
• For many firms, emerging markets are increasingly familiar places. Nearly half of the respondents have been operating in one or more emerging markets for at least a decade and two thirds have been there for six years or more. Institutional knowledge of these countries is far higher than it was at the turn of the century.
• Far more executives believe that the potential rewards far outstrip the risks within both the BRIC countries and other emerging markets. 52% expect growth prospects for their once-risky emerging markets business to be "significantly better" over the next two years.
• Local companies in emerging markets are sought after for partnerships and alliances. Despite a greater ease with the risks of new places, the need to tap into local knowledge and contacts quickly remains strong.

New Report Says Indonesia Internet Use Booming

Jakarta Globe, Crayton Harrison & Mark Lee | September 01, 2010

Mexico City. Brazil, Russia, India, China and Indonesia will double their Internet users to 1.2 billion by 2015, fueling growth at media companies and phone carriers, according to Boston Consulting Group Inc.

Indonesians use computers at an Internet Cafe in
Jakarta. A new report says Internet users inIndonesia
Brazil, Russia, India and China will double by 2015.
(AFP Photo/Bay Ismoyo)

The countries will have three times the Internet users of the United States and Japan combined by then, up from about two times at the end of 2009, the consulting firm said in a report to be released on Sept. 1. While mobile phones with Internet access will aid growth, personal computers will double in the five countries to more than 920 million, according to the report.

As consumers gain more access to the Internet, they’ll also spend more time online, providing a boon to entertainment providers, Boston Consulting Group said. The surge in Web use will benefit media companies such as China’s Tencent Holdings Ltd. and phone carriers, including Telekomunikasi Indonesia, analysts said.

“The fastest-growing Internet markets are those with low penetration rates and strong economies, and the BRIC countries all fall into these categories,” said Jake Li, an Internet analyst at Guotai Junan Securities in Shenzhen, China. “The opportunities for online advertising and e-commerce in these markets are huge.” He recommends buying Tencent shares.

The acronym BRIC was coined by Jim O’Neill, the chief global economist at New York-based Goldman Sachs Group Inc., in 2001 to refer to Brazil, Russia, India and China as a group of rising economic powers.

Boston Consulting added Indonesia to the group because of its population of more than 240 million and its proportion of mobile-phone users, which at 66 percent is higher than China and India, said David C. Michael, lead author of the report.

“Of the three markets, China, India and Indonesia, we believe that Indonesia has the best prospects for organic growth in telecommunications revenue,” said Tucker Grinnan, head of Asian telecommunications research at HSBC Holdings Plc in Hong Kong. “There is still a big rural opportunity.”

Indonesia’s wireless subscriptions will top 100 percent of the population by 2015, meaning some users will have multiple devices, according to Boston Consulting. Grinnan advises buying shares in Telekomunikasi Indonesia, the nation’s largest phone company, and Tencent, Asia’s biggest Internet company by market value.

Bloomberg

Indonesia and Turkey Beat Investors’ Expectations by Outperforming BRICs

Jakarta Globe, Michael Patterson | August 09, 2010

Related articles

• Indonesia May Be Ready To Join BRICs, Fund Says 7:43pm Jan 28, 2010
• Victory for BRICs in Rise of Chinese World Bank Vote 9:20pm Apr 26, 2010

Jakarta. Indonesia and Turkey are outpacing the biggest emerging markets by almost any financial measure, even while they may be too small to join the BRICs.

Indonesia’s equity index has climbed 21 percent this year and Turkey’s rose 13 percent, both hitting all-time highs on July 29.

Credit-market rallies sent yields on the nations’ foreign-currency debt to the lowest levels on record, JPMorgan Chase’s EMBI Global gauges show.

The MSCI BRIC Index of shares in Brazil, Russia, India and China is still 42 percent below its peak after losing 1.2 percent this year.

Less than two years after the global financial crisis prompted concern Indonesia and Turkey would default, investors are betting lower debt, growing populations and rising profit will spur economic expansions that led Goldman Sachs Group’s Jim O’Neill to promote the BRIC nations in 2001.

While China’s gross domestic product is about 4.2 times Turkey and Indonesia’s combined, they lead the “Next 11” smaller emerging nations with the most potential to affect world growth, O’Neill says.

“There’s a paradigm shift in the way both countries have been governed and in terms of economic performance,” said Amer Bisat, a former International Monetary Fund economist who helps oversee more than $1 billion at hedge-fund Traxis Partners in New York.

Indonesia and Turkey are “large, extremely systemically important and stable,” he said. “The market is looking at them in a very different light.”

The largest emerging-market stock mutual fund managers, which oversee about $250 billion, boosted their holdings in Indonesia and Turkey to the top “overweight” positions among 21 markets in June on expectations the gains will continue, data compiled by Cambridge, Massachusetts-based EPFR Global and JPMorgan of New York show.

The fund managers are increasingly optimistic as profit growth outpaces share prices in both countries, leaving the Jakarta Composite Index and ISE National 100 Index trading at price-earnings ratios about 20 percent below their pre-crisis peaks, according to Bloomberg.

Mark Mobius, who oversees about $34 billion as the Singapore-based chairman of Templeton Asset Management, said last month by e-mail that he planned to increase holdings of stocks in Turkey, where the firm already has more than $1 billion invested.

In June, he blogged that Templeton has a “positive take on investment opportunities” in Indonesia, while Antoine van Agtmael, chairman and chief investment officer of Emerging Markets Management in Arlington, Virginia, said on Bloomberg Television that the country was the most attractive among Southeast Asian markets.

The bullish bets are a turnaround from 2008, when investors shunned Indonesia and Turkey as the global economy fell into the worst recession since World War II.

The JCI and ISE both sank more than 50 percent, the nations’ currencies weakened at least 15 percent against the dollar and credit-default swap prices suggested a 66 percent chance of default for Indonesia and 52 percent odds for Turkey, Bloomberg data show.

Indonesian stocks are becoming more expensive relative to other developing markets.

The Jakarta gauge trades at 13.5 times analysts’ estimates for earnings over the next 12 months, near the highest on record relative to the MSCI Emerging Markets Index, which is valued at 11.2 times, according to data compiled by Bloomberg since 2006.

The MSCI BRIC gauge has a ratio of 11.

Turkish stock valuations factor in the nation’s political risks, while Indonesian companies have shown they can surpass analysts’ earnings projections, according to Martial Godet, who helps oversee more than $60 billion as the Paris-based head of emerging markets at BNP Paribas Investment Partners.

The ISE is valued at 9.6 times analysts’ profit forecasts for the next 12 months, a 14 percent discount to the MSCI emerging index, and companies in the JCI have beat analysts’ profit projections during the past five quarters, data compiled by Bloomberg show.

“The momentum is good for both markets,” Godet said. “They are not mainstream investments so people will continue to add money. In both cases we have populated countries that are growing very well.”

President Susilo Bambang Yudhoyono oversaw economic expansion of at least 4 percent throughout the global recession.

That helped the JCI jump 175 percent from its 2008 low to 3,060.59 on Aug. 6, about 1.2 percent below the all-time closing high of 3,096.82.

The stock benchmark closed up 0.7 percent on Monday, while the MSCI Emerging Markets Index climbed 0.4 percent to its highest in more than three months.

Indonesia’s $540 billion economy is expected to grow 6 percent this year, fueled in part by rising consumer spending among the nation’s 237 million people as well as rising commodity prices, according to estimates from the Washington-based IMF.

The rupiah has surged 41 percent from its 2008 low and is trading at the strongest level versus the dollar since June 2007.

Bloomberg

Indonesia Rising: What a Difference a Decade Makes

Jakarta Globe, Andrew Marshall, May 24, 2010

Singapore. Indonesia is the big winner as Southeast Asia’s investment landscape is transformed, with politics driving the tectonic shifts in market perceptions.

Thailand, the archetypal Asian tiger long a favored destination for global conglomerates and emerging markets investors, is increasingly being viewed as the region’s basket case, as chronic political conflict batters its image.

As protesters paralyzed central Bangkok in a protracted standoff that exploded into gun battles and arson attacks in the heart of the capital’s business district, Indonesia has been experiencing a profound shift in how it is viewed by fund managers and multinationals.

A decade ago it was regarded as among the world’s riskiest countries, riven by sectarian and ethnic violence, and crippled by rampant corruption.

Even 18 months ago, in the global panic that ensued after Lehman Brothers collapsed, investors desperate to lower their risk exposure dumped the rupiah and local stocks.

Now Indonesia is on course to achieve sovereign investment grade and is widely regarded as deserving inclusion in the BRICs bloc of emerging markets that investors cannot afford to ignore.

Across the region, whether driving markets up or down, political risk is back at the top of the investor agenda.

“As sovereign debt concerns in Europe unfold, risk aversion is spreading across global financial markets, and political events in Asia are likely to receive more scrutiny than usual,” Standard Chartered said in a research note this month.

While it is clear that political risk is central to market performance in Asia, quantifying it and predicting its impact on asset prices is anything but a straightforward process.

One of the most respected gauges of political risk is the World Governance Indicators data set produced annually with the support of the World Bank. They aggregate a large number of risk ratings from several sources, and they paint a telling picture.

In 2002, they rated Thai political stability at 59.1 out of 100. By 2008, it had dived to 12.9. Events since then will have dragged it even lower. Over the same period, Indonesia saw strong gains, while the Philippines drifted sideways.

Those trends have been mirrored in flows of portfolio funds and foreign direct investment. Following the re-election of President Susilo Bambang Yudhoyono last year, Indonesia has seen a surge in inflows, Thailand the reverse.

Deutsche Bank, in a report this month on the region that focused heavily on politics, ranked Thailand as the least attractive of the major regional markets.

“Our pecking order: Indonesia, Philippines, Singapore, Malaysia and Thailand,” it said.

Sovereign ratings are another key gauge.

Indonesia is being steadily upgraded toward investment level while Thailand risks further downgrades. Moody’s has a negative outlook on its Baa1 rating on Thailand and warned on Monday that “a protracted undermining of investor sentiment would have adverse effects on Thailand’s longer term credit fundamentals.”

Reuters

Indonesia Shows Greece There's Life After Austerity in BRIC Bid

San Francisco Chronicle, Bloomberg News, Sunday, May 23, 2010

May 24 (Bloomberg) -- If al-Qaeda-linked terrorists thought they could drive foreign investors out of Indonesia, they didn't reckon with the likes of Jim Castle.

Seven years ago, Castle, a Michigan-born consultant for 100 multinational companies -- including Citigroup Inc., Exxon Mobil Corp. and Nestle SA -- was having lunch at Jakarta's JW Marriott hotel when a truck bomb detonated outside the building, killing 12 people and injuring 150. Castle walked away unhurt.

Last July, he was less lucky while hosting a breakfast meeting at the same hotel. Two suicide bombers struck in near- simultaneous blasts at the Marriott and the nearby Ritz-Carlton. Nine people died in the attacks, and Castle clambered from the rubble grazed, dazed and with temporary hearing loss.

A year after that second escape, Castle, 64, continues to do business in Jakarta and shrugs off the dangers he faces, Bloomberg Markets reports in its July issue.

"More people here die from dengue fever than from terrorist attacks," he says.

The resilience displayed by Castle, founder of CastleAsia, is paying off as the world's fourth-most populous nation -- home to the single largest Muslim population -- basks in a consumer and resources-driven boom.

"Indonesia's potential is dramatic," says Hugh Young, who helps manage $260 billion, including Indonesian shares, at Aberdeen Asset Management Plc in Singapore. "It is resource- rich, has lots of people and some of its companies are as good as any you will find in Asia."

Beating the BRICs

Indonesia's $514 billion economy, the biggest in Southeast Asia, will grow at 6 percent this year, up from 4.5 percent in 2009, the International Monetary Fund forecast in April. That would make the nation of 240 million the best-performing economy after China and India among the Group of 20 countries -- outpacing both Brazil and Russia, the two other emerging giants grouped with China and India as the so-called BRIC economies.

Now, both Goldman Sachs Group Inc. and Morgan Stanley say Indonesia is a contender to be included in the BRIC club. Yet analysts disagree on exactly when the acronym will get an extra I. Chetan Ahya, a Singapore-based managing director at Morgan Stanley, says Indonesia should be considered for BRIC status if gross-domestic-product growth nears 7 percent next year.

Jim O'Neill, the London-based Goldman Sachs chief global economist who came up with the emerging-nation designation, says it will take much longer because he believes a true BRIC economy should be near to 3 percent of global GDP, while Indonesia currently accounts for just 1 percent.

'Great Potential'

"Indonesia has the ultimate potential," O'Neill says. "It has done well post-crisis and is showing signs of sustainable demand growth."

Investors say Indonesia -- a lush archipelago of 17,500 islands that stretches like a 5,100-kilometer (3,170-mile) chain of stepping stones from the Southeast Asian mainland to northern Australia -- is finally unlocking its full potential. The country is the world's No. 1 exporter of coal used in power stations and contains the largest gold mine and the single largest recoverable copper reserve.

It's also the biggest supplier of palm oil -- used in one- third of the world's frying pans and woks -- and the third- biggest exporter of natural gas. Indonesia is also geographically blessed due to its proximity to Japan and China, its two biggest export markets.

Domestic Market

Both U.S. president Barack Obama, who lived in Indonesia as a child, and China's premier, Wen Jiabao, scheduled June visits to Jakarta to strengthen relations. Trade between Indonesia and China more than doubled to $25.5 billion from 2005 to 2009. During the same period, U.S.-Indonesia trade rose about 20 percent to $18 billion.

At home, an emerging middle class is driving economic growth. Although 33 million Indonesians live in poverty, the World Bank says, the country has a middle class of 35 million. Unlike in many export-dependent Asian countries, private domestic consumption accounts for 61 percent of Indonesia's GDP.

"It looks to us that more wealth is trickling down than in the past," says Eugene Galbraith, chairman of PT Bank Central Asia, Indonesia's biggest financial services company by market value. "There are tens of millions of households on the edge of making the leap into the bankable class."

President Susilo Bambang Yudhoyono, a retired general first elected in 2004, heads a government sprinkled with Western- educated technocrats that has halved interest rates and signed a free-trade agreement with Japan. Under his Vision for Change program, he pledged to boost foreign investment, raise living standards, fight endemic corruption and fix crumbling roads and power grids. His initial efforts lured investors and lifted more people out of poverty.

Pace of Prosperity

Under Yudhoyono, 60, foreign direct investment reached $14 billion last year compared with $4.6 billion in 2004. Per-capita income has doubled to $2,300, while interest rates are at a record low 6.5 percent. The pace of prosperity has quickened. Indonesia's currency, the rupiah, gained 10.4 percent against the U.S. dollar in the 12 months ended on May 21, making it the best performer among 26 leading emerging markets. On March 12, Standard & Poor's raised Indonesia's credit rating to BB from BB-, two levels below investment grade. London-based Standard Chartered Plc predicts Indonesian debt will reach investment grade by 2012.

Yudhoyono is fighting back against Islamist terror factions. Since the attack on Jim Castle's business breakfast, Indonesian security forces have arrested or killed scores of suspected terrorists. Among the dead: Noordin Mohammad Top, the al-Qaeda- linked terror chief who the U.S. says masterminded both Jakarta hotel attacks and the 2002 nightclub bombings on Bali in which 202 people died.

Attack Foiled

On May 12, Indonesia's anti-terror squad killed five suspects who were plotting an attack on Yudhoyono at the country's Aug. 17 Independence Day ceremonies.

Now, the challenge for Western investors is to decide whether Indonesia's $234 billion stock market is overheated. Indonesian shares have outperformed those of all their BRIC rivals.

The Jakarta Composite index, which soared 87 percent in local currency terms in 2009, has risen another 3.5 percent by the same measure this year as of May 21 even after last week's global sell-off. By comparison, Indian stocks were down 5.8 percent for the year through May 21 as measured by the rupee; Russian shares were down 10.2 percent in Moscow's dollar- measured index; while Brazilian shares were down 12.1 percent and China's Shanghai composite index plunged 21.2 percent in their local currencies.

Bubble Concerns

Last month, the central bank said that Jakarta shares were in a bubble.

"The actual stock price now is actually exceeding the fundamental value," Perry Warjiyo, the bank's head of economic research and policy, said on April 8.

Older investors know how quickly things can change in Indonesia, a former Dutch colony that declared its independence in 1945. In 1967, the dictator Suharto became president after crushing a coup attempt, an era immortalized by both Christopher Koch's novel The Year of Living Dangerously and the Mel Gibson movie of the same title. Under Suharto's rule, government- aligned businessmen exploited an economy reliant on crude oil exports, which hummed along at a pace of 7 percent annual growth in the 10 years from 1987.

IMF Rescue

That came to an abrupt halt in 1997, when financial turmoil spread south from debt-ridden Thailand. The crisis devastated the Indonesian economy: From July 4, 1997, to June 17, 1998, the rupiah plunged 85 percent against the dollar. Loaded with debt borrowed in dollars, hundreds of Indonesian companies, including more than a dozen banks, became insolvent. In October 1997, the IMF stepped in with a $43 billion rescue package that forced the breakup of some Suharto-controlled monopolies. Within a year, prices for basic food items such as rice and cooking oil jumped by more than 200 percent, triggering street protests. Suharto, then 76, was pressured by his own allies to resign in May 1998.

IMF crisis management measures in Indonesia -- which delivered long-term fiscal responsibility at a cost of short- term political unrest -- are similar to those being imposed on Greece. In April, Greece agreed to raise taxes, reduce pension rights and cut public worker pay to slash a budget deficit estimated by the government to be 14 percent of GDP. In return, the European Union and the IMF are providing 110 billion euros ($134 billion) in emergency loans.

'Amazing' Transformation

"Indonesia after the financial crisis was where Greece is today," says Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney, which oversees the equivalent of $90 billion. "The transformation has been amazing."

Indonesia's external debt, which hit 150 percent of GDP in 1998, was 27 percent in March. The political transformation from dictatorship to democracy took less than a decade. Three presidents presided over the country in the four years after Suharto's departure. Yudhoyono won office in the first direct presidential elections in 2004. Four years later, he pulled his country out of OPEC, the bloc of oil-producing nations, after lack of investment and domestic energy demands transformed Indonesia into a net importer of crude. Yudhoyono won a second five-year term in 2009 after promising to more than double foreign investment to $35 billion within five years.

Power Struggles

To do so, he'll have to confront internal power struggles among Indonesia's political elite.

"It is hard to exaggerate the importance of the fights taking place in government today," says Kevin O'Rourke, Jakarta-based author of Reformasi: The Struggle for Power in Post-Soeharto Indonesia (Allen & Unwin, 2002). "It is a continuation of tensions between reformers and the remnants of the elite who prospered under Suharto-era patronage."

Those fault lines were evident in March when Indonesia's parliament, including some members of parties that support Yudhoyono, voted for a police investigation into alleged mismanagement of a 6.7 trillion rupiah ($723 million) bank bailout in 2008. The deal was approved by then-Central Bank Governor Boediono -- one of millions of Indonesians who have only one name -- and former Finance Minister Sri Mulyani Indrawati, the most senior woman in the government. Both have said the deal was necessary to save the financial system. Sri Mulyani, 47, who has a doctorate in economics from the University of Illinois, resigned from the government in May to be a managing director at the World Bank. Yudhoyono replaced her with Agus Martowardojo, 54, president director of PT Bank Mandiri, the country's biggest lender by assets.

Growth Resolve

Boediono, now Indonesia's vice president, says the government is targeting annual GDP growth of 7.3 percent by 2014.

"Growth must be accelerated, and this is our resolve," says Boediono, who has a Ph.D. in economics from the University of Pennsylvania's Wharton School. "We are lucky. Our commodities are in great demand at the moment, but we should not be complacent."

Some wealthy Indonesians fret that income disparities could spark instability.

"I have become richer, but not the people," says Sofjan Wanandi, chairman of the Employers Association of Indonesia and head of the closely held Gemala Group. "The country needs to grow faster."

Indonesia bulls such as Patrick Walujo, founder of Jakarta- based private equity firm Northstar Pacific Partners, are betting that the government will deliver greater growth.

More Competition

Since 2006, Indonesian-born Walujo, 35, has teamed up with Fort Worth, Texas-based TPG Capital and other international fund managers to invest more than $1 billion in companies such as PT Bank Tabungan Pensiunan Nasional, a lender whose shares have risen 74 percent this year to May 21, and PT Delta Dunia Makmur, a coal mining services company.

"When we started out in 2003, nobody wanted to look at Indonesia," says Walujo, who studied in the U.S. at Cornell University and worked as an associate at Goldman Sachs in New York. "Now, we are seeing much more competition."

Many key investment opportunities stem from the government's effort to modernize by spending $140 billion on public works.

"It boils down to two things: building 20,000 kilometers of roads and adding 15,000 megawatts of power generation over the next five years," says Gita Wirjawan, a Harvard-educated former banker who is chairman of Indonesia's Investment Coordinating Board. "I believe in the old Chinese adage that if you want to get rich, you build a road."

Mining Riches

Among U.S. investors lining up to win contracts: General Electric Co., the world's biggest maker of power-plant turbines and railway locomotives. The Fairfield, Connecticut-based company aims to make an additional $1 billion in revenue by 2014 from new infrastructure projects in Indonesia, according to David Utama, GE's Jakarta-based country president. GE won't disclose how much it currently earns in Indonesia.

The surging demand for Indonesian resources is perhaps most apparent on the remote east coast of Borneo, the world's third- largest island, where former headhunters still live in longhouses and orangutans build nests in a diminishing jungle.

One recent Monday just north of the equator, nine bulk carriers are anchored in shimmering heat off the palm-fringed port of Sangatta in East Kalimantan province, waiting to fill their hatches with coal from the world's biggest thermal coal mine.

Quality Coal

Twelve kilometers inland, inside pits up to 400 meters (1,300 feet) deep and 2.5 kilometers wide, trucks with tires twice the size of the men and women who drive them cart coal to conveyor belts that whisk the haul through the jungle to the port.

Last year, owner PT Bumi Resources dug 60 million tons of coal from Sangatta and other mines it owns in Borneo. By 2012, it aims to have almost doubled exports to 111 million tons. Last year, Beijing's sovereign wealth fund, China Investment Corp., loaned Bumi $1.9 billion to help it reschedule debt.

"Operationally, Bumi has some of the best mines in the world," says Adam Worthington, a Singapore-based analyst at Macquarie Capital Securities Pte, a unit of Australia's biggest investment bank, who has an "outperform" rating on the stock. "Extraction, transport and labor costs are low, and the coal quality is very good."

Bumi's potential may be blunted by a lack of corporate transparency that shadows too many Indonesian businesses. The mining company is controlled by the family of billionaire politician-businessman Aburizal Bakrie, a former Suharto associate.

Investment Risks

When the global credit crunch hit in 2008, the Bakrie family holding company, PT Bakrie & Brothers, had $1.1 billion of debt that had been raised by pledging shares in Bumi and other listed units. Bumi shares plunged 32 percent on Oct. 6, 2008, and then were suspended from trading for a month -- at a time when Aburizal Bakrie was serving as welfare minister. Since then, the loans have been restructured by the company's lenders and the stock has risen fivefold from its lows.

"For those investors willing to bear the corporate governance risks, Bumi is attractive," Worthington says. Aburizal Bakrie didn't respond to requests for an interview.

Investors will soon have the chance to bet on arguably Indonesia's least-likely success story: PT Garuda Indonesia, the state-owned airline with a once miserable safety record. In 2007, the EU banned the airline from Europe's airspace on safety grounds after flights operated by Indonesian carriers suffered three fatal air crashes that killed 272 over two years.

Airline Turnaround

In 2004, one Garuda passenger was even murdered in flight. Munir Said Thalib, 39, a human rights lawyer who had investigated abuses by Indonesia's military, was on his way to Amsterdam when he died midair from arsenic poisoning. An off- duty Garuda pilot who had been sitting in the next seat was jailed for 20 years for the crime in 2008, which prosecutors said during the trial was carried out for Indonesia's intelligence agency.

Five years ago, Yudhoyono gave Emirsyah Satar, a Paris- educated diplomat's son, the job of rescuing the airline. "We were losing money on 85 percent of our routes, and our planes were always late," Satar says.

He called in foreign experts to audit Garuda's safety practices, retrained pilots and retired old planes. Regaining customer confidence helped the airline make a profit of 1 trillion rupiah in 2009, just three years after getting a 1 trillion rupiah cash injection to stay in business. The EU flight ban was lifted in July 2009. Now, Garuda is preparing to sell as much as $300 million worth of shares in the third quarter as it seeks to double the fleet to 116 planes by 2014. The transformation of an outcast airline into an investment opportunity may be the surest sign yet that Indonesia is ready to join the emerging-market big leagues.

--With assistance from Greg Ahlstrand, Berni Moestafa, Yoga Rusmana, Achmad Sukarsono and Aloysius Unditu in Jakarta, Netty Ismail in Singapore and David Ellis in London. Editors: David Ellis, Jonathan Neumann

Russia Proposes Indonesia Join BRIC

Tempo Interactive, Monday, 19 April, 2010 | 17:42 WIB

TEMPO Interactive, Jakarta: The Russian Government has proposed that the Indonesian Government join Brazil-Russia-India-China or the BRIC working group.

According to the Deputy Minister of Transportation Bambang Susantono, this is to welcome Russia’s offer, especially for transportation sector.

“There is a possibility that Indonesia will join the club because Indonesia is a big country and has a large economy,” said Bambang after the bilateral meeting discussing Indonesia-Russia cooperation on transportation sector last Friday.

Bambang said he considered that it would be normal for Indonesia to join the group.

But, the two countries have just discussed the possibility of closer cooperation.

“We are just discussing task force at the level of Russia’s Deputy Minister with Indonesia,” he explained.

KARTIKA CANDRA

Indonesia in Place Among BRIC Nations, Templeton Says

BusinessWeek, by Berni Moestafa, January 28, 2010, 04:10 AM EST

Jan. 28 (Bloomberg) -- Indonesia, Asia’s second-best performing stock market last year, may be ready to join the so- called BRIC group of major emerging nations, according to Templeton Asset Management Ltd.

“Indonesia’s political and economic outlook has improved tremendously in recent years,” Templeton portfolio manager Dennis Lim wrote in a note yesterday on Chairman Mark Mobius’s blog. “So clearly, it would not look out of place beside the BRIC countries.”

Inclusion in the category -- Brazil, Russia, India and China -- coined in 2001 by Goldman Sachs Group Inc. Chief Economist Jim O’Neill may increase demand for Indonesian stocks. Investors should “stick with the BRICs,” a group that “tends to outperform in non-recession years,” Morgan Stanley strategists led by Jonathan Garner said last week.

The Jakarta Composite index jumped 87 percent last year as Indonesia skirted the global recession after nine interest rate cuts by the central bank. President Susilo Bambang Yudhoyono’s re-election in July boosted confidence he will maintain policies that helped Southeast Asia’s biggest economy expand more than 6 percent annually in the two years until 2008.

Economic growth may average 6.6 percent over the next five years as poverty and unemployment decline, Yudhoyono said on Jan. 4. Fitch Ratings on Jan. 25 raised Indonesia’s credit ratings to one level below investment grade.

Fitch’s Upgrade

Fitch’s rating upgrade reflects Indonesia’s economic resilience and an improving balance of payments, said Bank Indonesia Deputy Governor Hartadi Sarwono. Foreign-exchange reserves rose to $69 billion as of Jan. 22, he said.

“Being in the same group as BRIC may get Indonesia more attention from investors,” said Finny Fauzana, a fund manager at PT PNM Investment Management, which oversees about $139 million in assets in Jakarta. “But foreign investors putting money into the real economy need more than that because they consider a lot of other factors such as regulation and taxes.”

Indonesia ranks 122 out of 183 economies in a World Bank 2009 survey on business-friendly practices. President Yudhoyono said on Oct. 20 he would reduce bureaucratic “bottlenecks” that hinder investment. He campaigned for re-election in July on a pledge to double spending on roads, rails and ports to $140 billion over the next five years to boost economic expansion.

Faster Growth

Growth may accelerate to 7 percent from 2011, providing the case for Indonesia’s inclusion into BRIC, according to a Morgan Stanley report in June. Emil Salim, a former cabinet minister, said in July that Indonesia’s targeting to “put another ‘I’ into BRIC,” adding the goal may be achieved in five years.

“The BRICs theme, which played well in 2009, continues to resonate in early 2010,” Cambridge, Massachusetts-based funds tracker EPFR Global said Jan. 21. Dedicated BRIC equity funds recorded inflows of $182 million in the third week of January, compared with the $103 million average last year, EPFR said.

Overseas investors have bought a net 666 billion rupiah ($71 million) of the shares this year, according to exchange data. Overseas investors purchased 13.3 trillion rupiah of the shares last year, down from 18.7 trillion rupiah in 2008.

--Editor: Reinie Booysen, Linus Chua

To contact the reporter on this story: Berni Moestafa in Jakarta at +62-21-2355-3029 or bmoestafa@bloomberg.net

To contact the editor responsible for this story: Linus Chua in Singapore at +65-6212-1530 or lchua@bloomberg.net