GOT TO BE GOOD...Indonesia May Be ‘Superstar’ as Yudhoyono Wins...

GOT TO BE GOOD...

Indonesia May Be ‘Superstar’ as Yudhoyono Wins Vote


By Arijit Ghosh and Daniel Ten Kate

July 9 (Bloomberg) -- President Susilo Bambang Yudhoyono swept toward a second five-year term, receiving a strong mandate from Indonesia’s 176 million voters to take the country’s economy to new heights of growth.

Yudhoyono, better known as ‘SBY,’ won 61 percent of votes in yesterday’s election, according to a sampling of nationwide ballots by the Indonesian Survey Institute, which correctly predicted previous contests. His share was 62 percent in a count of almost 19 million votes by the General Election Commission.

Leveraging that victory into achieving his goal of growth rates on par with China and India will hinge on the ability to build roads, ports and power plants and lure foreign investment. To do so, he’ll have to overcome a bureaucracy where power is decentralized down to the district level across 17,500 islands.

“I would say a ‘definite yes’ in maintaining very solid economic growth, a ‘maybe yes’ to become the 9 percent superstar,” said Milan Zavadjil, Indonesia country head for the International Monetary Fund. “To go to the China level you need to take care of some issues, like major improvements in infrastructure, the investment climate and the legal system.”

The Jakarta Composite index, the third-best-performing benchmark in Asia this year, fell 0.6 percent as of 10:07 a.m. local time. The rupiah rose 0.8 percent, the most in two weeks.

Former President Megawati Soekarnoputri, 62, was running second with 26.6 percent, according to the institute. Vice President Jusuf Kalla, 67, trailed with about 12 percent. The commission won’t provide final results for about two weeks.

Infrastructure Spending

Yudhoyono has pledged to double infrastructure spending to as much as $140 billion during a second term to achieve annual growth rates of 7 percent. The president will also need to tame the rupiah, Asia’s most volatile currency, to reduce investment risk. It has both plunged 40 percent and gained 19 percent within the past 12 months.

Fixing Indonesia’s congested roads, neglected ports and aging power plants needs to be among Yudhoyono’s top priorities, according to nine of 11 chief executive officers contacted in the past month by Bloomberg News. He also needs to improve transparency in the legal system and reduce corruption to attract global investors, the survey found.

“Infrastructure development remains plagued by outdated or incomplete regulations that fall far short of attracting private investment,” said Sandiaga Uno, whose private equity firm PT Saratoga Investama Sedaya owns a stake in Indonesia’s second- largest coal mining company.

Dilapidated Ports

Indonesia ranked 86th out of 133 economies in terms of infrastructure quality in the World Economic Forum’s 2008 Global Competitive Index. That was lower than Pakistan, which faces almost daily attacks by terrorists, and Sri Lanka.

Poor access to markets and suppliers means higher expenses for Bernard Rohi, a trader in Ende, 1,700 kilometers (1,056 miles) east of Jakarta. Improving the dilapidated port would cut the cost of transporting ceramic goods by half, he said.

“The port can’t support economic development in the region,” said Rohi, as he sat in his shop surrounded by stacks of mattresses, crockery and television sets.

The rupiah is projected to have the biggest one-year price fluctuation among Asia’s 10 most-traded currencies. Twelve-month implied volatility, a measure of expected swings used when pricing options contracts, is 21 percent, compared with 16 percent for the South Korean won.

“Somebody has to eliminate the foreign-currency risk,” said James Castle, president of business advisory services company CastelAsia, who has lived in Indonesia for more than three decades. “Until they do, I don’t see a real rapid growth in infrastructure.”

Lagging Behind

While Indonesia received a record $8.3 billion in foreign direct investment last year, it lagged behind the $92 billion haul for China and $33 billion in India.

During her campaign, Megawati said Yudhoyono’s policies favored foreign investors at the expense of poor farmers. Almost 33 million Indonesians, or 14.2 percent of the population, live on less than $0.65 per day, down from 16.7 percent when Yudhoyono was elected in 2004. He had targeted cutting the poverty rate to 5.5 percent this year.

After raising fuel prices in 2005 and last year, Yudhoyono bolstered his popularity by giving 300,000 rupiah ($29) to 18.5 million poor families to offset the higher living costs. Since December he has cut gasoline and diesel prices three times.

The Jakarta Composite index has climbed 54 percent this year, third best in Asia behind benchmarks in Shanghai and Sri Lanka. The rupiah has strengthened the most on the continent in that time, gaining 8 percent against the dollar. The consumer confidence index in June rose to the highest since 2004.

Challenges Remain

“The market will be celebrating SBY’s election victory,” Nicholas Cashmore, head of Indonesia research at CLSA Asia- Pacific Markets, said in an interview with Bloomberg Television today. “There are still a number of challenges out there in the world, which may make it difficult for the rally to continue, at least in the short run.”

A landslide election victory will strengthen Yudhoyono’s hand in dismantling regulatory hurdles to keep pace with the BRIC nations of Brazil, Russia, India and China. His 7 percent growth goal compares with 5.7 percent since taking office in 2004.

“Our target is to put another ‘I’ into BRIC,” said Emil Salim, a presidential adviser and former cabinet minister. “Achieving that in five years is possible.”