Know How Indonesians became richer than the Filipinos

An Indonesian boom sparked by growing economic stability and falling corruption and debt levels has helped Indonesians catch up and become better off than Filipinos in per capita income in recent years.

That hasn’t surprised those following emerging markets closely, though the Philippines’ equity market has outperformed Indonesia’s in the last ten years–see table. Nor has it been a surprise seeing the Philippines leave behind the old glory days of the 1960s, and be bypassed by the one Asian country after another in per capita GDP.

“There was a time when the Philippines was seen as an Asian trendsetter, and fashionable young Malays would sport the barong, the formal embroidered shirt favored by Filipinos, to look cool,” writes Ruchir Sharma in Breakout Nations(New York: W.W.Norton & Company, 2012, p. 138). “But that was back in the 1960s, when the Philippines had the second highest per capita income in Asia, behind only Japan. The nation’s fortunes shifted since then.By the 1970s South Korea and Taiwan had passed the Philippines in per capita income terms. Malaysia and Thailand followed in the 1980s and China in the 1990s. Then in 2009, in a moment the Manila elite thought it would never see, Indonesia’s boom made Indonesians richer than Filipinos for the first time in history.”

What has Indonesia done right that Philippines’ hasn’t?

To begin with, it has managed to shake off the economic and political instability that came with the breaking of the Asian financial crisis – a crisis which hit Jakarta hard, with GDP falling close to 20 percent over the 1997-1998 periods. Moreover, Indonesia managed to bring its government debt down, which accounts roughly for 60 percent of that of Philippines.

Then there’s the battle against corruption and cronyism, big killers of emerging market growth, though it still remains high compared to that of China and India. 

To be fair, the Philippines has also made progress in bringing corruption down, too. But it is still more corrupt than Indonesia, slowing down development and deployment of infrastructure projects like the Manila airport, and constraining the country’s economic growth.

“Indeed the Manila international airport is a prime example of how cronyism and ineptitude has retarded economic growth,” explains Ruchir Sharma. “Recently voted one of the worst airports in the world, Manila has three terminals, but only the 1980s terminal is fully open to international airlines. The second terminal dates to the 1990s and is used by a local tycoon who doesn’t want to share it with foreign airlines; the third was finished in 2002 but didn’t open until 2008, and then only to local airlines because of ongoing construction contract disputes that still scare foreign airlines away.”

Unless Manila deals with corruption, the wealth gap between Filipinos and Indonesians will continue to grow ever bigger.

- Forbes