That's not to mention the fact that the IMF expects the country to become one of ASEAN's fastest-growing markets.

The impact of the financial crisis has been mainly on Indonesia's manufacturing industry and exports; these accounted for 26.8% and 44.5% of Indonesia's real GDP in 2008, respectively.

Shrinking global demand has challenged Indonesia's economy, but the impact is not as severe as for many other ASEAN members.

Triggered by collapsing external demand, Indonesia's YoY export growth has been negative since November 2008, when it fell 1.8% YoY, and further plunged 35% in January 2009.

Domestic market saves the day

Fortunately, the country's export slump has been offset thanks to a large domestic market. Private consumption accounts for 61% of Indonesia's GDP, a proportion higher than either Thailand or Malaysia.

Admittedly, in November 2008, retail sales dropped by 26.6% YoY, but they appear to have bottomed out since then, with retail sales rising 4.3% YoY in May 2009.

With growth in retail sales, some manufacturing sectors are likely to see a moderating contraction, such as Indonesia's garment industry. In May, the retail sales index for apparel saw double-digit rises for the third consecutive month.

Household appliances and handicrafts, toys and other sub-indices of Indonesia's retail index have all regained positive growth as at May 2009.

As Indonesia's manufacturing industry can't as yet fully supply its domestic needs, continued strength in its retail market is likely to drive imports and Hong Kong exporters are likely to find more opportunities.

Stronger financials than 10 years ago

There's a number of other, non-manufacturing stabilisers in place. Indonesia's banking sector remains healthy; there have been no government bailouts. Credit is abundant and there've been no widespread business shut downs.

Indonesia's debt service ratio has also improved, falling from 37.8% in 1997 to 18% in 2008. Its gross international reserves have also swollen threefold from US$17.4 billion in 1997 to US$51.6 billion.

Although the size of the country's outstanding external debt remained at similar levels between 2001 and 2008, Indonesia's ability to service its debts has strengthened. Its total outstanding external debt, as a share of GDP, was 82.8% in 2001, and it dropped to 25.7% in 2008.

The strength of the Indonesian Rupiah also illustrates Indonesia's improving financial position. The currency dropped from nearly Rp9,000 per US dollar in August 2008 to a low of Rp12,000 per US dollar in November 2008, as global investors pulled out from risky assets.

However, the depreciation seems to have stabilised and the Rupiah is heading towards pre-crisis levels. With a stable Rupiah, Indonesia can more easily attract foreign investment and is able to support imports.

Resilience in other parts

Indonesia benefits from having industries that are less affected by the external environment. Agriculture, fishery and forestry accounted for 13.8% of the country's GDP, and recorded real growth of 4.8% YoY in the first quarter of 2009. This sector employs 40% of Indonesia's workforce and employment remains largely unaffected.
     
The second largest employer is the wholesale and retail trade sector, and accounts for about 14.5% of GDP. Slowing imports inevitably dampened growth, leading the sector to shrink by 1% YoY in real terms in the first three months of 2009. However, the sector is stabilising and will likely hold up well in upcoming quarters.

Various sectors have seen encouraging results. In the first quarter of 2009, construction grew by 6.3% YoY, while catering industries were up 9.3%, and the communication industry shot up 30.9%.

Indonesia shares some similar issues with the Chinese mainland of the early 1980s. It is politically stable and rationalising policies to attract foreign investment. Further, Indonesia has a large labour supply and an abundance of natural resources.

But Indonesia is not only attractive to labour-intensive industries. High-tech electronics companies from Japan, South Korea and Singapore have set up businesses, and pharmaceuticals are increasingly being manufactured there by leading names such as Biochemie of Austria and BASF of Germany.

To further realise Indonesia's economic potential, the government is beginning to address impediments to foreign investment.

Investment law revisions made in 2007 give foreign investment national treatment in most industries. Indonesian Customs is being overhauled to make trade flows easier. Labour laws are being reformed to make employment terms less rigid.

Moreover, the July 2009 landslide victory of pro-reform President Susilo Bambang Yudhoyono means his second term to 2014 will likely allow many of his reforms to deepen.

The apparent strength of Indonesia's economy is not without its challenges. The financial tsunami touched off a wave of deleveraging. There is a world glut of spare production capacity, particularly in Asia, that will likely make foreign investors more hesitant to invest in new factories, even when the global economy recovers.

Secondly, Indonesia's weak infrastructure creates extra operating costs. Places with convenient access to infrastructure are major cities and free zones, such as Jakarta, Bandung, Surabaya and Batam. The infrastructure gap was estimated to be as much as US$90 billion by the Indonesian government.

It's worth pointing out that to truly cement Indonesia's attractions for investment, priorities are necessary, to upgrade the country's infrastructure, make transportation faster and cheaper and allow better land utilisation.