Indonesia on Right Track for Growth, ‘Dr. Doom’ Says

Jakarta Globe, Shirley Christie, October 25, 2011

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Nouriel Roubini, the American economist labeled “Dr. Doom” for his tendency to make dire predictions, on Monday took a sunnier stance toward Indonesia, saying its economy was moving on the right track.

“Indonesia is among the developing nations whose economies are growing at the fastest pace in the world,” said Roubini, the chairman of Roubini Global Economics.

He added that the key to strong growth was domestic consumption, especially in light of the present world economic crisis.

“Indonesia and India, which have domestic consumption accounting for 50 percent to 60 percent of their gross domestic product, have a better chance to have more balanced and long-term growth,’’ Roubini said in a seminar organized by Indonesia’s Investment Coordinating Board (BKPM).

For Indonesia, domestic consumption accounts for about 58 percent of its GDP, while exports account for 29 percent and investment makes up 15 percent.

Roubini, a professor of economics at the Stern School of Business at New York University, said he preferred to be seen as a realist rather than a doom-monger. He accurately predicted the collapse of the US housing market and warned of the 2008 global recession.

He said that growth in investments, exports and domestic consumption needed to be proportionate for balanced growth.

During the 2008 crisis, Indonesia’s economy was one of the few in emerging nations that managed to stay in the black. Indonesia’s economy, which is forecast to expand by 6.5 percent this year, grew by 4.6 percent in 2008, while Singapore, Malaysia and Thailand contracted.

But Roubini also said that despite the growth of consumption in Asia, including in China and India, the level was still far from that in the United States.

Although there was now a shift in global macroeconomic perspectives, with the United States, Europe and Japan no longer the main engine of growth, their influence would remain strong.

The economies of Asia, Latin America, Central America and the Middle East are increasingly playing a larger role as the engine of global growth, too. A multipolar world with competing centers of power and economic growth will emerge, requiring greater cooperation and coordination, Roubini said.

He also stressed that if the knife-edge economic situation in Europe descended into full-blown crisis, the impact on the global economy would be more severe than many predict.

He said that the key was not seeking to avoid a crisis through financial engineering, but rather sustainable economic growth. Such growth will maintain social and political stability and help to repay debt.

He has said that there is a 50 percent chance that the United States, Britain and the euro zone will fall into another recession in the next 12 months.

Leaders of the Group of 20 nations (G-20), which includes Indonesia, will meet in France next month to discuss Europe’s problems, which have shaken global equity markets and clouded growth prospects.