Devi Asmarani, Jakarta – New shopping malls and lavish condominium buildings are sprouting up across the capital city and hypermarkets such as Carrefour are expanding fast, at the expense of smaller supermarkets and traditional grocers.
Cellphones sell like hot cakes and new motorcycles and cars abound. But these trends belie reality.
While property and retail sales are rising – driven by growth in consumption spending, the nation's performance has been far from sparkling on more critical fronts – manufacturing and trade.
Economist Umar Juoro of the Habibie Centre think-tank said: "This is more a creeping recovery than an economic turnaround." Indeed, Indonesia has been a weak link among the emerging markets. Its recovery – from a severe bout of political, social and economic turmoil during the 1997 financial crisis – has lagged behind those of its neighbours.
Exports grow sluggishly. Last year, non-oil and gas exports reached US$47.4 million, up only about US$2 million over the previous year. Manufacturing is among the hardest hit, especially in textiles and footwear. Weakening foreign investments as well as the rising cost of imported raw materials and labour make these sectors less competitive – especially in the face of cheap imports from China swamping the country. Experts believe an economy spurred by consumption would continue to generate an average of 4 to 5 per cent growth for the next four to five years; its pre-crisis rate was 7 per cent.
Political stability combined with the fastest growth of the global economy in recent times help the economy swing along.
High growth is vital to provide jobs to Indonesia's estimated 40 million unemployed and to tackle poverty – in this country of 235 million, slightly more than 15 per cent of the population live below the poverty line.
The poverty rate doubled within months of the 1997 financial crash, according to the World Bank, but returned to pre-crisis levels as the government stabilised the economy.
The government aims for 4.8 per cent growth this year, but the current trend of surging oil prices may adversely affect the country, which became a net oil importer earlier this year.
Some are sceptical the target will be met. Central to the problems is the lack of new foreign investment in main sectors such as mining, and mining exploration activities are at a standstill.
Oil and gas exploration activities have declined significantly over the past several years, and across sectors, investors are still discouraged by a business climate riddled with structural problems.
Legal uncertainty, corrupt bureaucracy and unpredictable policy environments make for a high-cost economy.
Poor policy coordination between governmental offices and between Jakarta and the provincial administrations has often led to disputes, providing more cautionary tales for foreign investors.
University of Indonesia economist Chatib Basri said: "Expecting a drastic recovery is a little too soon, but macro economic stability and strong consumption level make sure there is not likely a doomsday scenario."