Where does Indonesia rank among other ASEAN developing economies?

This analysis uses GDP per Capita as a tool to measure roughly the average income level of the countries, thus analyzing their historical economic progress. World Bank has cited GDP per Capita benchmark of USD12,500 for high income and developed countries.USD4,000 for middle income and developing countries.

Malaysia; GDP per Capita: USD10,876 (Upper Middle Income Country)

The 2nd most developed economy in ASEAN behind financial hub Singapore, Malaysia is on the verge of being a developed economy after running consistently impressive growth for many decades. It has strong prospects for the long term future, despite recent political difficulties. Present day Malaysia is at the levels of South Korea and Taiwan in the early 1990s, when they were just established as developed economies.

There’s no obvious reason why Malaysia won’t catch up to South Korea’s developments in the next 20–30 years. Their growth has been consistent over the past few decades and are proven to be quite resilient to crises. They have a healthy diverse economy driven mostly by the manufacturing and services sector, which is a standard model of high income countries. Their services sector, mainly tech, ecommerce and banking are expanding larger and larger into neighboring ASEAN countries. They handled the middle income trap pretty well and even with maturing slower growth rates, they are expected to be fully developed quite soon.

Thailand; GDP per Capita: USD5,774 (Middle Income Country)

Thailand was on par with Malaysia in the early 1990s, they were considered newly middle income countries. However Malaysia’s economy boomed over the next few years while Thailand’s growth stayed at a very conservative pace. A lot of it had to be attributed to the 1997 Asian Financial Crisis which was triggered in Thailand that severely harmed its economy. It slowed down the momentum of their growth significantly.

What differentiates the Thailand economy with the Malaysian economy in the 1990s was that Malaysia had strong growth in their higher value industries, which include pharmaceuticals, medical technology, Banking, tech and ecommerce. Thailand’s economy however was very slow to evolve and still mainly revolved around their automotive manufacturing industry. The Thailand economy seem to have difficulty overcoming the middle income trap as they currently couldn’t find much growth in their services sector which could otherwise generate higher value. Therefore i expect the Thailand economy to have consitent little growth, barring any major reforms.

Indonesia; GDP per Capita: USD3,834 (Lower Middle Income Country)

Indonesia has for the most part been behind Malaysia and Thailand. Present day Indonesia is only as developed as Malaysia and Thailand were in the early 1990s, just before the Malaysian economy started to boom rapidly. That being said, things are currently looking positive for Indonesia. They are expected to enjoy a faster development than the Thailand economy in the 90s. Indonesia has consistently recorded growth rate of at least 4% annually since recovering from the Asian Financial Crisis. Additionally, much of Indonesia’s growth in recent years are driven by its rapidly expanding services sector. If the Government can stimulate growth in its sluggish Manufacturing sector then Indonesia will have a diversified economy with impressive growth. This is why Indonesia is quite likely to catch up to Thailand’s level in the next 10 years or so.

indonesia-population-pyramid-2014-1.gif

In the next 20-25 years, assuming current growth remains constant, Indonesia can potentially develop into an upper middle income country. It will look a lot like Brazil’s present day economy which has similar population demographics and market structure. Indonesia currently has the right age demographics to make the progress to a more developed economy. The country has a young population and in the next few decades will have a massive workforce. This leads to greater output generated by the economy, leading to higher disposable income among the workforce to be spent on the market, which leads to a prosperous business cycle.

Phillipines; GDP per Capita: USD2,635 (Lower Income Country)

Since the 1980s, things haven’t quite worked out for the filipino economy. Although there has been improvements in the last decade or so, the country has lagged far behind and is currently still classified as an undeveloped economy. Much of this has to do with the lack of political stability in Phillipines history. Nonetheless, growth seemed to be picking up in the last one and a half decade or so. At the current rate, Phillipines is projected to reach the benchmark per Capita for a developing economy USD4,000 at some point in the next decade. They have a continuously diversifying economy similar to Indonesia, however output has always been weak in all sectors. There is one important factor that must be considered. Newly elect President Duterte’s policies on Drug War may have been deemed controversial. But national public sentiments for him is highly positive. If President Duterte can clean up the drug war issue quick and focus on revitalizing the economy, Phillipines will quickly rebound.

Vietnam; GDP per Capita: USD1,684 (Lower Income Country)

Vietnam is the least developed country in this list simply because they started developing late and from such a low base. The war with America really held them back in development when other ASEAN countries were growing. However, ever since the Vietnamese economy started stabilizing in the early 90s, growth has been impressive.

One of the reasons as to why Vietnam has so much promise amongst investors is that the Vietnamese political landscape and economic policies are somewhat similar to China in their pre boom years in the early 1990s, focused on manufacturing and other value added goods.

The single party system that Vietnam employs, if done right can ensure stability in the political landscape, leading to a single national vision in economic growth. This facilitates strong growth. Vietnam has the most potential out of other ASEAN countries to record supergrowth like China did, who often exceeded 10% annually. This is further supported by the fact that Vietnam has a solid foundation for their services sector as they have one of the highest broadband penetration in ASEAN. They have the potential to be big in the e-commerce market and thus will have a busy and diversified economy. If they hit that momentum of 10% growth annually, they can easily catch up to Indonesia and Thailand in 10–15 years. If Vietnam can sustain the rapid economic growth for a prolonged period of time, it’s not impossible that they reach a GDP per Capita of USD25,000 similar to present day South Korea and Taiwan in 20–30 years.

Edit: Vietnam however has a unique problem it does not share with the other ASEAN countries, rather a condition quite similar to their northern neighbors. Vietnam has an aging population, unlike the other ASEAN countries. At some point in the not so distant future, this will slow down Vietnam’s economy as they would deal with a diminishing population, workforce and spending in their economy. There are ways to handle this problem such as introducing liberal immigration reforms to push the natural flow of workforce immigration. Nonethless this will remain a highly complex and sensitive issue that will no doubt prove to be a problem in the future.

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