Jumping In Java: Indonesia Still A Buy

Forbes.com, Carl Delfeld, Chartwell Advisor, 08.21.09, 01:05 PM EDT

China is not the only emerging market where you can find opportunities. Don't overlook the big archipelago to its south.

Long-time readers know that Indonesia has been a favorite of mine that is often overlooked by even savvy global investors. This year, it is one of the best performers in the world with a growth rate just a bit behind China. Other attributes are its rich natural resources, less reliance on exports relative to its neighbors, and its growing consumer class which fuels 65% of GDP.

Other positives are its appreciating currency and strong banks. Jakarta's banks are among Asia's best-capitalized banks. Then there is political stability. Susilo Bambang Yudhoyono, reelected last month as Indonesia's president, expects faster growth next year and a narrowing of the country's budget deficit alongside a likely increase in inflation.

Indonesia has been less affected by the global slowdown than many, thanks to relatively sturdy domestic consumption, due in part to spending associated with this year's legislative and presidential elections, and a lower dependence on exports. The finance ministry has projected Southeast Asia's largest economy to grow by 4.3% this year. The resilience of the economy helped Yudhoyono cruise to victory with 61% of the vote.

In his 2010 budget announcement, the president said the government was targeting growth of 5% in 2010. He said Indonesia planned to trim its deficit to 1.6% of gross domestic product from an expected 2.5% this year, calling it a "safe and appropriate" level. The International Monetary Fund recently said Indonesia could afford a 2% deficit in 2010 to maintain sufficient fiscal stimulus.

Next year's deficit is to be financed via government bonds and foreign loans from the World Bank, Asian Development Bank, International Development Bank, the president said.