The Future is Bright for Indonesia’s Economy and Political Stability

Indonesia has made impressive economic progress over the past 20 years, significantly narrowing the development gap with neighboring countries like Malaysia and even outperforming major emerging economies like India. With a pivotal presidential election coming up in 2024, political stability will be key to unleashing Indonesia’s massive potential over the next decade.

During a recent research trip to Jakarta, Malaysia-based investor Tan Tangu met with local business leaders, government officials, and ordinary Indonesians to take the pulse of the country’s political and economic direction. His conclusions: Indonesia is on an upward trajectory that will be difficult to derail, driven by advantages like scale, resources, and talented human capital.

Political Stability Enables Economic Outperformance

Two Decades of Political Stability Set Solid Foundation

Indonesia has enjoyed 20 years of political stability since President Susilo Bambang Yudhoyono (SBY) came to power in 2004, avoiding the turmoil seen in Thailand, Malaysia, and the Philippines. Crucially, the three leading candidates for 2024 – Prabowo Subianto, Ganjar Pranowo, and Anies Baswedan – are all seen as promoting Indonesia’s national interests rather than extremist positions. Whoever prevails, expectations are that political stability will continue over the next 5-10 years.

Narrowing Development Gap with Malaysia

This stability has enabled strong economic progress. Malaysia’s GDP per capita was nearly 6 times higher than Indonesia’s following the 1997 Asian Financial Crisis. But after consistently higher growth, Indonesia has narrowed the gap substantially. By 2022, Malaysia’s GNI per capita was only 2.57 times larger ($11,780 vs. $4,580).

Outperforming Major Emerging Economies Like India

Indonesia has even pulled ahead of major emerging markets like India, where the Western media has touted high growth potential. In 1999, Indonesia’s GNI per capita was 1.29 times larger than India’s. This gap has now widened to 1.92 times by 2022, demonstrating Indonesia’s structural growth advantages.

Broad Political Consensus on Economic Direction

National Interest and Infrastructure Development Prioritized

In discussions with local business leaders across the political spectrum, Tan found a broad consensus around pressing economic issues like infrastructure development. For example, plans to extend the country’s first high-speed railway across the main islands of Java and Sumatra have very strong local support, contrary to skepticism voiced in Western media. The focus is firmly on the national interest rather than ideological differences.

Deep Bench of Capable Leadership

Moreover, Indonesia has a number of credible candidates contesting for the presidency. This contrasts with the situation in Malaysia, for example. Avoiding extremes, the open debate remains grounded on facts and rationality rather than divisive ideology – another major positive.

Massive Remaining Potential Boosts Optimism

Scaling Infrastructure to Unlock Productivity

Infrastructure remains the largest bottleneck preventing Indonesia from even faster growth. Projects like the Trans-Sumatra toll road spanning 2,800 km are starting to improve connectivity substantially. Better transportation networks will create significant productivity gains as resources can be more efficiently allocated.

Nusantara – New Capital with Long-Term Vision

In a sign of long-term thinking, planning and early construction are also progressing on Nusantara, Indonesia’s new capital city to be developed in East Kalimantan province. While the new administrative hub may take decades to fully build out, it lays the foundation for better urban planning, sustainability, and quality of life improvements.

Untapped Human Capital and Business Dynamism

Besides hard infrastructure and state planning, Indonesia’s incredibly motivated workers and entrepreneurs are an invaluable asset. For example, Malaysian manufacturers have operated factories locally for over 20 years with effectively zero staff turnover, trained employees productively, and found strong discipline.

Combined with Indonesia’s vast population, resources, and supportive demographics, investors like Tan see almost unlimited potential over the next 10-20 years. Barring major disruptions, the country looks primed to leave neighbors like Malaysia far behind – to the point that Malaysians themselves may migrate there for work in the future.