|The East Indies: Explosive Potential|
Despite all the euphoria surrounding a new world order built on BRICs, each of the individual components has its own unique set of challenges and problems. Brazil is prone to a pugnacious labour force and macroeconomic mismanagement; Russia is misruled and institutionally weak; India is ill-governed and a political pandora's box; and China has enormous unsustainable imbalances in consumption, savings and investment and a chronic lack of social institutions.
Yet there is no doubt these economies, despite their pitfalls, have great unrealised potential. Amongst many forecasts of future GDP, last week I made a GDP ranking based on an adjusted Solow model for 2050. India and China by now are economic superpowers, in a tripartite global economic order, alongside the United States. Brazil is not far behind; both PwC, Goldman Sachs, and I, predict it to be the fourth largest economy in a few decades; it recently overtook the frail British economy to become the sixth largest.
However, Russia's economic success, despite its enormous unused capital base and natural resources, is tentative. Whereas Indonesia, an archipelago of islands stretching the equator in South East Asia, clearly is seldom mentioned as a future success story. Indonesia is still scarred by the 1997 Asian Financial Crisis when its currency, the Rupiah, came under severe speculative attack on the heels of a successful self-fulfilling attack on the Thai Baht. Indonesia suffered the most amongst the East Asian nations; losing 13.5% of GDP that year.
Indonesia had under Suharto put into place institutional liberal reforms led by a coterie of hardheaded economists, known as the 'Berkeley Mafia'. Since the restoration of democracy and the 1997 crisis, Indonesia has seen robust growth. The islands are blessed by diverse ethno-linguistic groups and a culture which is a gamut of historical interactions. Indonesia deserves to be on par with Brazil, India and China. It is now a low-wage competitor to China and slowly integrating itself into Global Supply Chains. With an underused population of nearly 240 million and rising, Indonesia has enormous room for improvement which it is slowly realising.
I propose the adoption of a re-coined acronym: BIIC. Russia is sadly too politically repressed; it lacks proper functioning property rights, contracts, and rule of law to sustain long term capital intensive economic growth; befitting an advanced economy. Indonesia should take its place in the pantheon of emerging nations.