Indonesia, Vying to Enter BRIC, Has Star Role in ‘Chindonesia’

July 11 (Bloomberg) -- Indonesia’s economy may double in the next six years as the world’s biggest exporter of power- station coal and largest producer of palm oil taps surging demand from India and China, CLSA Asia-Pacific Markets said.

China, India and Indonesia will generate $10 trillion of wealth for investors by 2015, Nicholas Cashmore, head of Indonesia research at CLSA Asia-Pacific Markets, said in a note titled “Chindonesia: Enter the Komodo,” a reference to the reptile found only in eastern Indonesia. The three economies are Asia’s “next growth triangle,” he said.

Feeding the needs of the world’s two most-populated nations as demand from Western countries slows may help President Susilo Bambang Yudhoyono meet his target of boosting growth to 7 percent in his second term. Indonesia wants be included among the so-called BRIC nations of Brazil, Russia, India and China, Emil Salim, a presidential adviser, said.

“Together, China and India are increasingly becoming the biggest marketplace for almost everything sold on the planet,” Cashmore said in the report published yesterday. Indonesia plays a symbiotic role in the emergence of China and India and “as this role becomes more pronounced in years to come, it will boost growth, investment and consumption.”

India’s industrial production increased at the fastest pace in eight months in May, the statistics agency said yesterday. The South Asian nation, the biggest buyer of Indonesia’s palm oil and cashew, may overtake China next year as the world’s fastest growing major economy, according to the World Bank.

BRIC Membership

China’s economy will expand 7.2 percent in 2009 from a year earlier, the Washington-based lender said. Indonesia’s exports to China grew 16 percent last year, compared with a 10.7 percent expansion in demand from the U.S., the second-largest buyer of Indonesian products.

Indonesia’s economic acceleration provides a case for its inclusion among the BRIC economies, Morgan Stanley said in a report to clients last month.

The $433 billion economy can expand “significantly” more than 7 percent once Yudhoyono fixes the nation’s congested roads, neglected ports and ageing power plants, according to Joachim von Amsberg, the World Bank’s representative in Jakarta.

Yudhoyono is set to win a second term after presidential elections this week, providing the 59-year-old former general with a mandate to double spending on roads and power to $140 billion by 2014.

Congested Roads

Fixing Indonesia’s congested roads, neglected ports and ageing power plants needs to be among Yudhoyono’s top priorities for him to achieve his goal of boosting growth and reducing poverty, according to nine of 11 chief executive officers contacted in the past month by Bloomberg News.

He also needs to improve transparency in Indonesia’s legal system and reduce corruption to attract global investors, the survey found.

“Keeping the drive for fair and transparent practices and processes, which helps secure a level playing field for all,” will help business in Indonesia, Stuart Dean, Southeast Asia president of General Electric Co. said in a response to the survey last month.

In 2007, Tata Power Co., which is building a 4,000-megawatt plant in western India, bought a 30 percent stake in two coal mining units owned by Indonesia’s PT Bumi Resources. The $4.14 billion plant will run on coal from the Indonesian mines.

India’s coal imports will more than double to 100 million tons by 2012 from 40 million tons, estimates Kaamil Fareed, a senior trading manager at the Coal & Oil Group, which supplies coal in India and Pakistan. That’s about 40 percent of Indonesia’s estimated coal production for this year.

“As a leading supplier of commodities, Indonesia is leveraged to the growth of Chindia,” Cashmore said referring to China and India. “Indonesia is ready to rise in the world economic hierarchy and take its place alongside China and India.”