CFO of Bank Danamon, Vera Eve Lim, was today interviewed by Eric Bellman, the Jakarta correspondent for the Wall Street Journal. Bank Danamon is one of Indonesia’s largest banks by assets. She emphasized that infrastructure is “what keeps her up at night”. As I have said time and time again, the dire need for infrastructure will be a brake on future growth.
Lim commented that the underinvestment in infrastructure will result in Indonesia economically evolving into a case similar to India. That is, inflation will persist above targets, and, GDP growth will slow. The government of Indonesia, can continue to subsidize fuel, but it will all be in vain if the economy cannot grow because it is too expensive to move goods and services around the country. The central bank’s priority of managing inflation is weakened by the infrastructure impact on costs. As I have previously written, the governor of Bank Indonesia, Darmin Nasution was quick to emphasize such at his recent dialogue at the Consulate-General of New York.
Lim is not alone amongst experts in seeing this risk. Bellman and his colleagues at the WSJ’s blog, SoutheastAsiaRealtime, also wrote today of the increasing consensus the government is following the India path. This they say is reflected in the recent weak performance of the Indonesia Stock Exchange and the Indonesian Rupiah in international currency markets.
While I remain bullish on Indonesia, I am concerned that heading towards the election cycle, the government and the legislature will play more politics and theatre than good policy. With Europe grinding to a halt, Jakarta has a choice before her- sit and rest, or, push harder than ever to ensure the economy has the capacity to grwo.
