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Six Markets to Watch: Indonesia and the Philippines
A Tale of Two Archipelagoes
KAREN BROOKS is Adjunct Senior Fellow for Asia at the Council on Foreign Relations.See more by this author
As recently as 2008, the economies of Southeast Asia received roughly less than half as much foreign direct investment as China did. Four years later, in 2012, they pulled to within spitting distance ($111 billion versus $121 billion). This surge in international interest reflects the region’s attractive demographics and, even more so, its impressive recent economic performance.
The ten countries of the Association of Southeast Asian Nations (ASEAN) represent a collective market of 620 million people, significantly larger than that of North America, Latin America and the Caribbean, the eurozone, or the Middle East and North Africa. They are home to a young, large, and growing labor pool, as well as a growing and increasingly consumption-oriented middle class. The ASEAN countries posted a combined GDP of over $2.2 trillion in 2012 -- larger than Russia’s GDP and almost the same size as Brazil’s -- and many economists expect that number to double by 2020. ASEAN’s five core countries -- Indonesia, Malaysia, the Philippines, Singapore, and Thailand -- have been growing as fast as any other regional grouping in the world over the past five years.
Impressive as this pack has been, two of its members have stood out as particularly promising. Giant Indonesia soared during the last half decade, boasting high growth, low inflation, an extremely low debt-to-GDP ratio, strong foreign exchange reserves, and a top-performing stock market. But it is the Philippines, the region’s other archipelago, that is now providing the biggest upside surprise. The Philippine economy expanded by 6.6 percent in 2012, exceeding most economists’ predictions, and was among the fastest-growing economies in the world in the first half of 2013, expanding by 7.6 percent. (Despite the destruction of Typhoon Haiyan, which had just ravaged the country as of this writing, the Philippines’ growth rate for all of 2013 is expected to remain above 6.5 percent.) The Philippine Stock Exchange Index has posted record highs since President Benigno Aquino III came into office in 2010, and approvals for foreign investment have more than doubled in that period. The country’s inflation is low, its foreign exchange reserves are high, and its public debt is steadily declining. As a result, all three of the major credit-rating agencies upgraded Philippine sovereign debt to investment grade in 2013: the first such rating in the country’s history.