While the rest of Asia is slowing down, Indonesia's economy has posted its fastest growth for 15 years. In 2011 GDP grew by 6.49%, the best year since before the Asian crisis. That compares favourably to slowing rates in big regional neighbours such as China, India, the Philippines and Thailand.
Indonesia's success is homegrown, says Sarah Mishkin in the FT. "Domestic consumption and investment has enabled Indonesia to grow faster than its neighbours, such as Singapore, whose economies are more dependent on global trade flows and therefore more vulnerable to slowing export demand."
More than 60% of Indonesia's £442bn economy is generated by domestic consumption exports are only worth about 25%, says Capital Economics. That compares to 50% in much of the region. Only a fifth of exports go directly to Europe or America, making Indonesia more protected from the European crisis than other Asian countries.
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One of the economy's main drivers is population growth. Indonesia is the world's largest Muslim country, and its population of 240 million should reach 315 million by 2030. It's also younger than a lot of its neighbours. Standard Chartered calculates that its working population won't peak until 2040, while China's could peak this decade. Indonesia's young consumers are largely debt-free, providing scope for future spending.
Indonesia is also rich in commodities. It's the world's largest exporter of thermal coal and palm oil, it has tin, copper and gold and is self-sufficient in oil and gas. The consensus view among analysts quoted on Bloomberg is that it will grow by 6% next year.
Yet investing there isn't a sure bet. Like most exotic' markets, its stock exchange suffers when international investors lose their risk appetite. The rise of its currency, the Indonesian rupiah, isn't certain either.
Last year the Bank of Indonesia cut interest rates to a record low of 6%. With inflation running at 3.7%, well within the bank's 3.5%-5.5% range, the Bank has made it clear that another cut is on the way. That would take the steam out of the rupiah, which has appreciated 1% against the dollar so far this year.
