The docks at big Indonesian ports like this one are quieter these days, as China’s demand for raw materials has begun to cool.
However, drive an hour inland and the agricultural giant Cargill is racing to finish a cocoa bean processing plant, while a large instant-noodle factory is running full tilt to meet the demand for convenience food from Indonesia’s large and growing middle class.
“We’re having quite a tough time keeping up,” said Tjun Sulestio, a general manager of the noodle factory run by PT Suprama.
The contrast in many emerging markets between signs of a looming currency crisis and strong domestic demand is visible around the world. Stock markets and currencies have fallen in recent months in places like Buenos Aires, Jakarta, Manila and Istanbul, as investors have worried that weaker Chinese growth and a US Federal Reserve that is pumping out fewer dollars will cause a global stumble in many developing nations.
Like limbo dancers struggling to shuffle under a low bar before standing upright again, emerging markets must shuffle along under weak commodity exports and capital outflows before they can recover their balance and let strong domestic demand for products like cars, electronics and instant noodles carry their economies forward again. The question is whether their consumers and businesses will continue to spend, or will international troubles spill into domestic economies in ways they cannot control?
“We don’t want that bar to go too low,” European Business Chamber of Commerce in Indonesia chairman Jakob Sorensen said. “The lower it goes, the harder it will be.”
There are reasons for optimism. Many stock markets in emerging economies rebounded last week. International problems have not yet caused the bank runs and large-scale flight of international investors that made previous crises so severe, like the Asian financial crisis in 1997 and 1998.
Central banks in emerging markets have gone out of their way to accumulate rainy-day funds of US dollars and other foreign currencies. With the conspicuous exception of China, bank regulators in emerging markets have also imposed tougher lending regulations and kept shadow-banking operations on tight leashes.
While emerging markets may face trouble from beyond their borders, in many of them, spending at home has seldom been so strong. Many businesses are even struggling to find enough workers.
In the Philippines, a popular chain of chicken restaurants now promises a free meal to new employees and their families within five minutes of their signing up for work. Some McDonald’s franchises have put up signs offering free meals merely for filling out a job application.
“I’d never seen a sign like that,” Philippine President Benigno Aquino III said in an interview at the Malacanang Palace in Manila last week.
India and Indonesia suffered large declines in their currencies and stock markets in summer last year, lasting through early autumn, after then-US Federal Reserve chairman Ben Bernanke indicated in May that the Fed would start easing back on measures that helped keep longer-term interest rates at historically low levels. Bernanke’s warnings had the effect of attracting money from overseas investors to the US.
Both India and Indonesia have since sharply narrowed the deficits in their current accounts, a broad measure of trade and financing. They allowed significant depreciation in their currencies last year, which made imports more expensive and their exports more competitive.