(Bloomberg) -- Indonesia’s economic growth may accelerate to 7 percent starting in 2011, providing a case for its inclusion in the so-called BRIC economies along with Brazil, Russia, India and China, Morgan Stanley said. Political stability and buoyant domestic demand will help boost expansion in the $433 billion economy, Morgan Stanley said in a report dated June 12 that compares Indonesia with India. President Susilo Bambang Yudhoyono is expected to win the July 8 elections, polls show.
“What this means for the investor community is that they need to look at this asset class more seriously,” Chetan Ahya, a Singapore-based economist at Morgan Stanley, said in an interview today. Political stability, improved government finances and “a natural advantage from demography and commodity resources are likely to unleash Indonesia’s growth potential,” he said.
Southeast Asia’s largest economy may grow 60 percent in the next five years to $800 billion due to a stable administration, lower capital costs and a government plan to spend as much as $34 billion to build roads, ports and power plants by 2017, Morgan Stanley said. Leaders of the nations known as BRIC will meet this week in the Russian city of Yekaterinburg.
Indonesia may expand as much as 4 percent this year, making it the fastest-growing major economy in Southeast Asia, according to the International Monetary Fund. Morgan Stanley expects 3.7 percent growth this year.
Economic growth of 7 percent starting in 2011 is “possible and achievable,” Finance Minister Sri Mulyani Indrawati told reporters in Jakarta today.
Presidential Election
Yudhoyono may win an overall majority in next month’s election, avoiding the need for a second round of voting in September, polls show. Yudhoyono’s Democrat party won more than 25 percent of seats in parliamentary elections this year, becoming the only party to be able to nominate a presidential candidate without seeking outside support.
The 2009 parliamentary election results “suggest continued stability in this democratic political framework and is a critical factor in unleashing Indonesia’s growth potential,” Ahya said. “Coincidently, the India story has also recently been given a fillip from the strong political mandate of the Congress-led coalition in the 2009 general elections.”
Indian Prime Minister Manmohan Singh’s Congress party won the most seats in parliament since 1991 in results announced last month.
Higher Education
Indonesia still lags behind the BRIC economies in the quality of higher education, which is “crucial in moving the economy up the value-added ladder,” Ahya said in the Morgan Stanley report.
“We still have a problem with the supply side, especially infrastructure and human capital,” said Destry Damayanti, chief economist at PT Mandiri Sekuritas in Jakarta. The nation may not be able to exceed 7 percent economic growth starting 2011 until the investment and education infrastructure is upgraded, Damayanti said.
Leaders of the BRIC nations may use their first summit on June 16 to press the case that their 15 percent share of the world economy and 42 percent of global currency reserves should give them more influence over policies.
Developing countries say their votes in the IMF, founded at the end of World War II to promote global trade, don’t reflect the shift in economic power. Brazil, the world’s 10th-largest economy, has 1.38 percent of the IMF board’s votes, less than 2.09 percent for Belgium, an economy one-third the size.
The BRICs may overtake the combined $30.2 trillion gross domestic product of the Group of Seven nations by 2027, Jim O’Neill, the London-based Goldman Sachs Group Inc. chief economist who coined the term for the four countries in a 2001 report, has said. That is a decade sooner than he had forecast earlier.
To contact the reporter on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net
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