Dan Murphy, Jakarta – Indonesia's economy is finally showing signs of life thanks to a peaceful presidential election, a new president who has proved acceptable to the majority of the Indonesian people, and black gold.

The defeat of B.J. Habibie in the October presidential election was seen as a necessary precondition to resumed investment by many in the Indonesian business community. Habibie was viewed by many Indonesians as an extension of Suharto, the former general who ruled for 32 years, and investors worried political turmoil could rise upon his election.

But the election of Abdurrahman Wahid has led to an immediate shift in mood, particularly in Jakarta. The five-star hotels are near capacity once more as foreign businessmen flock to Indonesia to inspect prospective investments and, in some cases, seal deals. In early December, the Indonesian Bank Restructuring Agency reached an agreement with a foreign investment group to sell about 38% of vehicle maker Astra International, the biggest transaction yet agreed by the agency.

Analysts were in general agreement the deal couldn't have been closed before the election. It's hoped it will get the ball rolling on the sale of other assets seized from conglomerates that owe money to the state to cover the cost of the country's $80 billion bank bailout.

The impact of Wahid's victory isn't showing yet in the trade numbers or gross domestic product, which is forecast to either contract or grow by 1% this year. But the macroeconomic picture is improving, thanks to surging world oil prices and a recovery in domestic demand. Exports rose 2% in October from September to $4.58 billion as oil and gas exports rose 15% to $1.06 billion. Non-oil exports though – a key indicator of the health of manufacturing – remained flat at $3.54 billion.

The trade surplus jumped to $2.56 billion from $1.41 billion a year ago as imports continued to languish because of the weak rupiah. Even rising prices have been cause for cheer, indicating that consumers are less afraid to spend. Consumer prices, the key measure of inflation, rose 0.25% in November from the previous month, and is now up 1.75% year-on-year. Interest rates are at their lowest point in two years. The benchmark three-month government bill now yields about 13%.

But there are still daunting obstacles to recovery. In the first eight months, approved domestic investments fell by half to $2.8 billion, and approved foreign investment plunged 76% to $2.1 billion from a year earlier. Money may be trickling back but the chronically ill banking system could threaten economic stability.

Government debt is now $71 billion, and Finance Minster Bambang Sudibyo says 41 trillion rupiah will be spent servicing it next year. A further IDR37 trillion is expected to be spent on interest payments for recapitalization bonds the government has pumped into sick banks.