That decision may not seem very significant, but consider it this way: If you were Indonesia, which countries would you rather have as your buddies? A bunch of sleazy, corrupt, idle “lottery winners” such as Nigeria, Venezuela and Angola? Or would you prefer a set of hard-working and diligent neighbors such as Singapore, Malaysia and Thailand? Not to mention two of the largest growth economies in the world: India and China?

Believe me, when Indonesia left OPEC it wasn’t to save the paltry $3 million annual dues. Like Groucho Marx, Indonesia decided it didn’t want to be a member of a club that had such low standards for membership. Instead, it would rather join the good guys.

For emerging market investors, that choice is a significant one.

To be fair, Indonesia’s decision wasn’t just based on a snobbish desire to mingle with a classier set of countries. For one thing, while Indonesia still produces and even exports quite a lot of oil, it’s a big country and is no longer self-sufficient from a petroleum standpoint: While its needs are about 1.1 million barrels per day, its production is now only 860,000.

What’s more, Indonesia doesn’t share OPEC’s ambition, which currently appears to be to squeeze the rest of the world until oil costs $1 million a drop. Indonesia subsidizes oil for its domestic consumers (237 million of them, most of who are pretty poor) and so the last thing it wanted was yet higher oil prices – the subsidies were killing its budget.

President Susilo Bambang Yudhoyono took a huge amount of heat when he increased domestic oil prices by 125% in 2005; there were more riots after he found it necessary to raise them another 30%. However, if he hadn’t done so, oil subsidies alone would have been more than 20% of government spending – and that’s before taking into account food subsidies for the poor, also necessary in a year when rice prices have trebled.

The bottom line is that Indonesia wants lower – not higher – oil prices. More so, in the last decade, it has abandoned the sillier features of an OPEC-member country’s economic-management playbook. While the oil company Perusahaan Pertambangan Minyak Dan Gas Bumi Negara – commonly referred to as Pertamina – is still state-owned, it is allowed to do joint ventures with foreign companies. And, unlike Russia or most OPEC countries, Indonesia’s government has the sense not to steal the proceeds of those joint ventures that prove themselves successful. As a result, more than half of Indonesia’s oil-import deficit will disappear when the Cepu Block offshore oil fields, jointly developed by Pertamina and Exxon Mobil Corp. (XOM), opens up to full production in 2010.

Since Indonesia doesn’t agree with OPEC’s prime objective, and doesn’t approve of OPEC’s typical state-owned kleptocracy as a way of conducting business, it’s not surprising it decided to leave.

That’s not to say that Indonesia has reached free-market perfection. For one thing, it remains astonishingly corrupt – ranked 143rd on Transparency International’s 2007 Corruption Perceptions Index. That places the country far below China and India and close to the level that makes Nigeria and Myanmar such charming places in which to do business. The corruption dates back to the 32-year rule (1966 to 1998) of Indonesian strongman Suharto, who modernized the economy but used his position to grab billions of dollars for himself and his family and was forced out of office in an economic collapse. He died early this year.

Nevertheless, in the last decade, instead of wasting energies on rooting out every vestige of Suhartoism, Indonesia has moved a long way towards being a functioning democracy. Under Yudhoyono, the economy has grown at around 5% per capita, while privatizations have taken place – the steel company Krakatau is due to be privatized later this year, for example. Public spending has been kept under control and, most importantly, Indonesia has used these years of easy money and high commodity prices to pay down debt. Its international debt is now only 35% of its gross domestic product (GDP), a level it should easily be able to live with without major crises.

In summary, Indonesia has moved from a commodity exporter to a true emerging market, and deserves the attention of investors accordingly.

There are only two Indonesian companies with full American Depositary Receipt (ADR) listings, both of them in the telecom sector. Thus, the easiest way for a U.S. individual investor to invest in Indonesia is through the closed-end Indonesia Fund (IF) The fund is run by Credit Suisse Group AG (ADR: CS), is rather small at only $93 million in assets, but has the advantage of selling at a 9% discount to net asset value (NAV), with an expense ratio of 1.55%. It has returned 38% per annum over the last five years, as Indonesia has demonstrated its recovery from the 1998 “Asian contagion” financial crisis, but there would appear to be more to go for.

Indonesia’s satellite telephone company PT Indosat Tbk (ADR: IIT) operates cell-phone and long-distance services, and is currently trading at a Price/Earnings ratio of 15 on trailing earnings. It has a dividend yield of 4%.

Indonesia’s fixed-line telephone company, PT Telekomunikasi Indonesia (ADR: TLK), is trading at a trailing P/E of 14, and features a dividend yield of 3.6%. It offers fixed-line and cell-phone services, and is the country’s traditional telephone provider, founded in 1884.

With the two ratings so close, I would tend to go for the satellite service PT Indosat Tbk, since Indonesia is a large and enormously complex archipelago, with shaky infrastructure.

Source: Even Groucho Marx Would be Happy With Indonesia’s Profit Opportunities

Rising raw material prices, in particular rising food prices, are now causing real hardship and what represents a cause for shoppers in developed economies to grumble is a matter nothing short of life and death for the millions less fortunate around the world. This note considers what many emerging countries are doing and why their actions, far from alleviating the problem, are actually making matters worse.

Lord Mark Malloch Brown is a junior minister in the current Labour administration. He has a reputation for being forthright and often puts his colleagues’ hackles up. He is also the former deputy secretary general at the United Nations and an acknowledged authority on global issues of critical concern. His recent comments regarding the growing food crisis are significant both because he has identified some of the root causes and because he has taken steps to raise the matter where some of his more craven colleagues dare not.

Lord Malloch Brown describes, somewhat unoriginally, the confluence of factors he sees as serving to cause food prices to rise as a “perfect storm”. These factors are: a series of poor harvests in Australia, the incremental demand for improved diet caused by the newly prosperous parts of China and India, coupled with the now wide-spread process of biofuel “flag planting” on land previously devoted to the production of food stuffs. We would add a few additional factors, on which more below.

Bang on cue, the United Nations secretary general Mr Ban Ki-moon has warned that, if allowed to escalate, permanently higher food prices could not only damage global growth but also, possibly, global security too.

Rightly, the secretary general has stuck to the UN’s remit by indicating that an environment that has seen wheat prices double and the price of rice explode higher could seriously put back the process of global poverty elimination. “If not handled properly, this crisis could result in a cascade of others (including the imposition of quotas and the banning of exports) and become a multi-dimensional problem affecting economic growth, social progress and even political security around the world”.

The biofuels debate is interesting from a number of angles. Firstly, it is not absolutely true to say that the commitment of land to the production of biofuels automatically reduces food production everywhere (although that hardly makes the European Union’s full-on encouragement of plant-derived fuel right).

Supporters of biofuels tend to use the Brazilian experience as justification for the dash to plant-derived fuel alternatives, not that that country’s success should detract from the fact that there are a lot of other places where land which would otherwise have been used to grow food for human consumption has now been given over to the production of biofuel to feed machinery!

The EU could, for example, call a halt to its pre-announced intention to derive 5.75% of petrol and diesel to be manufactured from plants, although we understand the EU’s difficulties given growing stresses in the oil market too.

The developed world has hardly covered itself in glory on this matter either. In particular legitimate questions might be asked of Western countries’ commitment to what has become known as the “Washington Consensus”. Part of the reason why a number of African countries are now back on the verge of starvation is that developed nations, through their International Monetary Fund (IMF) conduit, actively encouraged many African governments to cut farming subsidies and focus instead on producing cash crops for export and by so doing, open up their previously closed economies.

That the plan has backfired is made obvious by the fact that many countries are now struggling to grow sufficient to meet basic levels of domestic demand. Whilst the UN falls back on its World Food Programme to raise sufficient funds to feed starvation zones, what is really required is greater research and development, improved credit facilities and ultimately a “green revolution” similar to that which took place in parts of Asia, not that the Asian experience is without its own pressure right now.

From the point of view of global economics there has always been a gulf between the “haves” and the “have-nots”. Generally speaking, the larger a country is, the greater the likelihood that it will be richly endowed with natural resources. The fact that not even the largest countries are so well endowed in every scarce resource is reflected in the fact that imported inflationary pressure has become a global issue. Indeed, some of the world’s largest and most populous countries are those with the greatest dependency on imported raw materials.

Estimated top global countries by resource production

The chart shows resource wealth, calculated using the most recent production data for energy, basic resources and agricultural products using average prices achieved over the previous quarter. Against this is plotted a countries’ wealth on a per capita basis, to show that some countries are likely to benefit significantly more than others. On this basis, Saudi Arabia, Canada, Australia and Russia stand out. The second chart (below) compares the global share of a country’s estimated resource wealth against its share of global population.