Opinion: Emerging markets and developed world at crossroads

The Jakarta Post recently published a story that poverty is decreasing in this teeming capital city of Indonesia. The report cited data from the Jakarta chapter of the Central Statistics Agency (BPS Jakarta) which reported that the percentage of “low income” families fell to 3.48 percent of the total population from 3.62 percent in 2009.

“Low income” is defined as families living on less than $1 per day.

In 2008 and 2007, the percentages were at 4.29 percent and 4.48 percent, respectively.

Jakarta’s governor Fauzi Bowo was quoted as saying the city’s economy is growing at a “healthy rate” of and the welfare of its citizens is “improving.” Bowo stated that the city’s economy expanded by 6.5 percent in the first nine months of the year, due to increased levels of consumption, exports and investment.

If these figures are indeed accurate, it may be another reflection of the rising fortunes of the emerging markets versus what seems to be the start of a long, slow decline in the developed nations of the West.

Consider, in contrast, a recent report from the National Center for Children in Poverty which stated that a disturbing 42 percent of children in the U.S. live in low-income homes, while about one-fifth live in poverty. Moreover, the number of American children living in poverty has climbed by 33 percent since 2000 -- while the population of children rose by only 3 percent.

(The U.S. federal government defines “poverty level” as an annual income of $22,050 for a family of four; $18,310 for a family of three; and $14,570 for a family of two.).

The poverty data is perfectly congruent with endless worries about persistent high unemployment in the U.S., a rising federal deficit and fears of another plunge in the housing market.

Indeed, the news about jobs, national deficits, and poverty seem to get worse in the western nations and Japan day by day, while the economic and financial developments in the emerging markets
appear to get rosier (with some exceptions like Russia, of course, which faces a demographic time-bomb).

Indonesia, as a whole, has become a darling of many investors focused on the developing world.
The Oxford Business Group wrote that the country’s GDP is set to climb by at least 6 percent this year, while Moody’s Investor Service mulls upgrading the country’s credit ratings.

Through the end of September 2010, foreign direct investment into Indonesia totaled $6.7 billion, more than thrice the $1.9 billion recorded in the first nine months of 2009

In addition, The Economist magazine recently gushed about Indonesia’s growing economic power, noting that with a population of about 245 million people in 2011, the country’s GDP will reach around $806 billion, creating a GDP-per-capita of $3,280.

On this basis, Indonesia’s economy will exceed that of either Holland or Turkey, making it the sixteenth biggest economy in the world.

Indeed, some economists, including the redoubtable Nourel Roubini has suggested Indonesia should replace Russia in the “BRIC” group of prominent emerging markets (which would change the acronym to “BIIC”).

Indonesia’s emergence has been nothing less than extraordinary – it wasn’t that long ago the country was desperately poor and wracked by chronic political corruption and violence. As recently as 1997, as a result of the Asian financial meltdown, Indonesia was on the brink of collapse.

Granted, Indonesia (as a representative of the emerging markets) has a long way to go before it can achieve the political stability and wealth of western Europe and North America.

However, given the opposite trajectories of the developed and emerging worlds, perhaps a new and irreversible paradigm is now in place.