‘Dr. Doom’ Stays Bullish on Indonesia’s Economy – Jakarta Globe Interview
From Jakarta Globe:
‘Dr. Doom’ Stays Bullish on Indonesia’s Economy by SK Zainuddin
He has been referred to as Dr. Doom for his dire economic predictions. After all, he claims to have predicted both the collapse of the US housing market and the 2008 global recession.
But Nouriel Roubini, chairman of Roubini Global Economics and an economics professor at the Stern School of Business at New York University, prefers to describe himself as a realist.
On his first visit to Indonesia, Roubini told the Jakarta Globe that he was impressed by what he saw and that he was bullish on the economy because of the country’s overall policy framework and its commitment to reform.
“More than Dr. Doom, I am Dr. Realist because I have spoken on lots of the upsides to the global economy and also the downsides as well. You have to be realistic about the outlook,” he said.
Roubini was in Jakarta recently at the invitation of Gita Wirjawan, the outgoing chief of the Investment Coordinating Board (BKPM) who was appointed as trade minister last week in President Susilo Bambang Yudhoyono’s cabinet reshuffle.
“You can never take [growth] for granted,” Roubini said. “I am bullish on Indonesia because its overall framework is right. They know what needs to be done and there’s a willingness to do it and at a speed that it needs to be done.”
He said he expected the country’s economy to grow between 6.5 and 8 percent if it invested in infrastructure, human capital and a range of other reforms.
Roubini said he felt the biggest challenge facing the global economy over the next five years was the tension between the economically, fiscally and financially hampered Western developed economies and the robust emerging markets, especially those in Asia. One side will push the global economy forward while the other will drag it down, he said.
“Over time, the share of global GDP and growth accounted by emerging markets is going to increase for sure. Even if the US and Europe are going to grow to their potential, the emerging markets will grow faster,” he said.
In the short term, the resilience of emerging markets will be good for them and good for trade. But Roubini said that while emerging markets were one important locomotive for the global economy, they were not the only one. Despite their current woes, the United States and Europe remain significant economies.
China’s purchasing power parity is $1.5 trillion. The United States’ is $10 trillion and India’s is $500 billion. “So the total consumption of nearly two billion Chinese and Indians combined is barely 20 percent of US consumption,” Roubini said.
Even though consumption is growing in emerging economies, it pales when compared to the United States or Europe, he said. “The importance of emerging markets will grow for sure but can they be the only engine? No.”
Roubini raised the possibility of the US economy going into a double-dip recession, the euro zone facing disorderly default and China having a hard landing as a result of overinvestment in capital goods.
“If the economic situation in Europe becomes chaotic because of a disorderly default, the impact on the global economy will be severe,” he said.
European policy makers, Roubini said, are talking about financial engineering to avoid a crisis, which is necessary but not sufficient. “The key is sustainable economic growth, which will maintain social and political stability and help to repay debt,” he said.
He also said that with the global shift in economic power, political power would also shift to the East. As a result, a multi-polar world with competing centers of power and economic growth will emerge and will require greater cooperation and coordination.
Roubini supports the role of the G-20, a grouping of the 20 largest economies in the world, in determining economic direction. “The risk, however, is a G-Zero world if there is no agreement on financial, security and political architecture,” he said.
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