Leaders of India and Indonesia must be bold to deliver promised reforms in rocky economic times

PUBLISHED : Monday, 21 September, 2015, 1:38am
UPDATED : Monday, 21 September, 2015, 1:38am

Asian economies are so entwined with those of the world's biggest, the US and China, that the analogy of boats on a tide comes readily to mind.

As American and Chinese trade and demand for commodities rises and falls, so do their fortunes.

That is especially challenging for Indian Prime Minister Narendra Modi and Indonesian President Joko Widodo, who won elections last year on waves of expectation that they could lift their nations to the next stage of development.

Had they been able to implement promised reforms, investor sentiment would have been more positive.

India's growth, at 7 per cent for the second quarter, neck-and-neck with China's, is below the 9 per cent average of the past two decades and short of levels needed to lift from poverty more than 21 per cent of the population.

About 11 per cent of Indonesians live below the World Bank's poverty line and 35 per cent just above it; growth slipped in the second quarter to 4.67 per cent from 5 per cent for 2014.

Increasingly, support for Modi and Widodo is being replaced by dissatisfaction.

Both leaders are being hampered by corruption, bureaucratic red tape and obstructionist politicians. Their inability to push reforms has disappointed those who saw their election as a turning point.

Years of strong economic growth was not matched by investment in infrastructure. Both nations now desperately need power plants, roads and ports.

But drawing the investment so crucial to build infrastructure, boost the industrial and manufacturing sectors and create jobs is difficult given the economic climate.

Even before the plunge of Chinese equity markets and devaluation of the yuan, there had been a drop in exports and commodity prices and concerns about China's economy. There has since been falls in the region's currencies, with the Indian rupee and Indonesian rupiah among the hardest hit.

Bickering in the upper house of India's parliament has delayed approval of a goods and services tax that would create the world's biggest single market and boost growth.

In turn, labour and land legislation, crucial for job creation, has been pushed back.

Many of Widodo's economic programmes have struggled to get off the ground, being beset by implementation and bureaucratic problems.

In recent weeks he has put in place a new economic team, unveiled major infrastructure projects and announced plans for a new stimulus package. But both leaders need to take bolder steps to push for promised reforms.