Indonesia Got It Right: A Post-Crisis Success Story

To say that I didn't rate Indonesia's prospects highly after the Asian financial crisis of 1997/98 would be an understatement. It was going from one transitory leader to another after Suharto's ouster. Its economy contracted hugely. All the while, various secessionist movements were tearing the country apart. That was a nasty, nasty time.

It is remarkable how in the relatively short space of little over a decade how Indonesia has reconstituted itself. I guess adversity brings out the best survival instincts in some (while bringing about even more gorging on debts 'n' fats in others). Regaining its investment grade credit rating from Moody's is but the latest manifestation of the country being back in the high life again. Whereas nearly all of the West is having trouble dealing with debt loads hovering around the 100% of GDP mark, Indonesia has over the years whittled down its sovereign debt to 25% of GDP. 25%! All the while it has created a lively and participative political sphere where previously there was none. Enter its singing president and all that. PIGS, eat your hearts out...

The country is already seeing some of the dividends of its improving global reputation as international investors have started flocking to its bonds. Last week, Indonesia achieved a record-low yield on the largest-ever long-dated bond sold in Asia, when it sold 30-year bonds at a yield of 5.375%. That's less than some European countries have to pay to raise money. Italian 30-year debt yields, for example, are around 7% and Spain's around 6%.

The ratings moves also cap an extraordinary run of triumphs for Indonesia, which has nursed itself back to financial health following the Asian financial crisis in the late 1990s, when it became a poster child for emerging economies run amok with a massive debt load and unstable leadership. More recently it has benefited from several years of political stability under President Susilo Bambang Yudhoyono, conservative fiscal management and deep reserves of natural resources such as coal and natural gas that have fueled strong economic growth, even in the worst days of the most recent global financial crisis.

There may be nothing like a full-blown crisis to concentrate the mind, indeed:

Indonesia's relative health today as other countries struggle with ratings downgrades is a direct result of its efforts to deal with its own financial troubles in the late 1990s. Few countries have suffered through a debt implosion like the one Indonesia felt in the Asian financial crisis, when investors fled the country and the country's government effectively collapsed. Since then, the Southeast Asian nation's ratio of public debt to gross domestic product has plunged from more than 90% in 2000 to a modest 25% today, as the painful rebuilding process has made it more cautious about spending and debt.

As I asked recently, do financial markets nowadays really distinguish between developed and developing? Those labels may have been rendered meaningless in that sphere. Many of the Southeast Asians look to be in better shape overall with far lower debt loads and far higher growth prospects. Once more some learned from their crises; others did not. To the former goes the Pacific Century and the latter the New Normal.