- Goodbye BRIC, hello BIIC? In 2001, three years after Russia's ruble collapsed, Goldman Sachs named the country a member of the BRICs—Brazil, Russia, India, and China—the emerging markets it said would be four of the most dominant economies by 2050. Over the next several years, BRIC-fixated investors piled into Russia as its resource economy thrived in the era of fast-rising oil prices.
- For plenty of money managers and economists, however, the Russo euphoria is all but gone. From Nouriel Roubini to Morgan Stanley, they are calling either for Russia to be ousted from the BRICs altogether in favor of Indonesia or, at the least, for Indonesia to join the other four. They are put off by the policymaking drift in the Kremlin, Russia's demographic atrophy, and endemic corruption.
- Indonesia's fiscal prudence, economic growth—6 percent this year, according to the International Monetary Fund—and strengthening social and political institutions have far more appeal. Twice-elected President Susilo Bambang Yudhoyono has directed funding toward schools and health care, and Indonesia's coffers are full enough to put the onetime IMF bailout case on the brink of an investment-grade credit rating. (the other advantage is Indonesia is not export driven, so is much more of a self sustaining organic economy)
- "Russia is just not a good place to put your money," says Richard Shaw, managing principal of QVM Group, a South Glastonbury (Conn.) investment advisory. Shaw says he avoids putting clients in Russian stocks and funds, and steers clear of BRIC-linked investments because of their Russia exposure. He would rather own Indonesian exchange-traded funds: "While Indonesia isn't a paragon of virtue, it's better, especially to participate in the Asian boom."
- Indonesia, the world's fourth-most-populous country and largest Muslim democracy, has corruption, too. In part, that's a legacy of the Suharto dictatorship that ended in 1998.
- Yet Tom Lydon, president of Global Trends Investments, says the Asian nation has more going for it than Russia. "Beyond natural resources, it is supported by improving domestic consumption, and anticorruption efforts appear to be working." Indonesia has sentenced several politicians and former ministers for corruption.
- In its latest Global Competitiveness Report, the World Economic Forum ranked Indonesia 44th out of 139 countries—up from No. 54 the prior year. (Russia came in at No. 63.)
- While Morgan Stanley has called for Indonesia to join the BRICs—Goldman has called the country a "Next-11" nation, in a runner-up list of sorts—economist Nouriel Roubini of New York University has argued that Indonesia should replace Russia in the bloc. "From an American perspective," he wrote last year in a column, "Indonesia is an attractive alternative to Russia, which has vied with Venezuela for leadership of the 'America in decline' cheering section."
- 12 years after its financial crisis the archipelago is China's third-largest trading partner, foreign investment has more than tripled since 2004, and gross domestic product is growing faster than Russia's.
- While Russia's Micex index has fallen 22 percent from its December 2007 peak, the Jakarta Composite Index is approaching an all-time high.
- Russia's market fortunes have fallen so low that some investors are taking a second look, especially since Russian corporate profits have been robust. "Russia really stands out as being cheap and attractive," says Maarten-Jan Bakkum, an emerging-market equity strategist at ING Investment Management in The Hague.
- Indonesia's supporters say that over the long haul the Asia nation has the edge. More than half of the population is under 30, while aging Russia faces a paucity of productive labor. The Kremlin may have to commit increasing sums to care for the elderly, says Wijayanto, managing director of the Paramadina Public Policy Institute in Jakarta. "Indonesia," he says, "has the potential to become a key global player."
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