Mansoor Dailami

The World Bank

Jakarta, Indonesia

June 15, 2011

Multipolarity: A New Global Economy

• A new global economic order is unfolding as the

balance of global growth shifts from developed to

emerging economies

• Multinationals from emerging markets will be

increasingly important sources and drivers of global

investment flows

• The international monetary system will move toward a

multi-currency regime

2

3

• Multipolarity

– The concurrent existence of more than two global

growth poles

• Growth poles

– An economy that drives global growth by virtue of its:

(a) size (b) dynamism (c) linkages with the rest of the

world

• By 2025, leading emerging economies such as

Brazil, India, Indonesia, Korea and Russia are likely

to join the ranks of China and the advanced

economies as global growth poles

Looking ahead: EM countries will be key players

in a multipolar world

Emerging economies are increasingly becoming

the drivers of global growth

1994–98

Global distribution of growth poles

2004–08

1994–98

2004–08

4

5

0

500

1000

1500

2000

2500

0

50

100

150

200

250

300

South-South

South-North

2,447

deals

Number of deals

(right axis)

$ billion Number of deals

576 deals

$254

billion

$27 b.

Increasing cross-border M&A deals originating in

EM is a feature of the new corporate landscape

Sources: Global Development Horizons 2011, based on Thomson-Reuters.

EM firms have become important

borrowers in global markets

Sources: Global Development Horizons 2011, based on Dealogic.

0

1

2

3

4

5

6

7

8

0

100

200

300

400

500

600

700

Bonds

Loans

$ billions percent

Share of EM international

corp. debt to world total

(right axis)

6

$ 123 b.

$ 461

billion

EM corporate cost of foreign capital has declined, but

remains higher than in developed countries

Sources: Global Development Horizons 2011, based on Dealogic.7

96

345

224

53

226

103

0

50

100

150

200

250

300

350

400

EM

US

basis points

Investment Grade

0

100

200

300

400

500

600

700

800

900

EM

US

basis points

Non-investment Grade

U.S. dollar corporate bond spread to benchmarks

8

The role of EM in the international monetary system

remains modest –despite their growing economic size

• Virtually no EM has a currency used internationally for

reserve accumulation, invoicing, or exchange rate

anchor

• Developing countries are exposed to currency

mismatch

• Addressing these disparities requires urgent attention,

both to manage the system and to affect its future

evolution

9

Regarding the future of international monetary system,

three potential scenarios can be envisaged

• A status quo centered on the US dollar

• A system with the Special Drawing Rights (SDR) as the

main international currency

• A multicurrency system

Historically few currencies have dominated the

international currency system

10

1860-1914

pound

dollar

since 1920s 1930s

dollar

pound

franc

1980s

dollar

D mark

yen

dollar euro renminbi

21th c.

This century may witness the emergence of a

new multi-currency system

11

12

The use of renminbi in trade settlement is

growing…

5.1 percent

0.0

1.0

2.0

3.0

4.0

5.0

6.0

0

50

100

150

200

250

300

350

2009 Q3-Q4 2010 Q1 2010 Q2 2010 Q3 2010 Q4

Cross border trade settlements in renminbi

Imports

Exports

billion renminbi percent

percent of

total trade

Sources: People’s Bank of China.

China’s total exports 2010: $1.75 trillion

China’s total imports 2010: $1.52 trillion

13

…and the renminbi offshore market has taken off on

the back of government policy…

0

50

100

150

200

250

300

350

400

450

500

2009 Sep.

2009 Dec.

2010 Mar.

2010 Jun.

2010 Sep.

2010 Dec.

2011 Mar.

Renminbi-denominated bank deposits in Hong Kong SAR, China

billion

0

5

10

15

20

25

30

35

40

45

50

Offshore renminbi bond issuance

non-Chinese issuers

Chinese issuers

billion

Source: Hong Kong Monetary Authority Source: Dealogic DCM

• On the equity side, the Hong Kong Stock Exchange will launch its first

renminbi-denominated IPO.

Indonesia in a Multipolar World

• Indonesia in 2011 is an emerging dynamic middle-

income economy driven by…

– political stability, democratic consolidation and

deepening

– strong macroeconomic and fiscal management which

remained resilient through the global financial crisis

– natural endowments and demographic strengths

– growing international profile, e.g. in G-20

After a deep recession during the Asian crisis,

Indonesia has posted robust growth performance

Sources: World Bank DECPG and WDI15

-15

-10

-5

0

5

10

15

1990 1994 1998 2002 2006 2010

GDP growthpercent

post-crisis

growth: 5.1%

Indonesia

pre-crisis

growth:

8.0%

Average of

Korea,

Malaysia,

Philippines

and Thailand

estimate

0

5

10

15

20

25

30

35

40

Gross fixed capital

formation

percent

of GDP

31 percent26 percent

Indonesia will likely join the ranks of global

growth drivers by 2025…

Sources: Global Development Horizons 2011.

2.809595147

0

5

10

15

20

25

30

35

40Percent Baseline share of global growth contribution, 2021–25

… and is likely to become one of the larger

emerging economies in the world

Sources: Global Development Horizons 2011.

0.5

Indonesia

4.1

Malaysia1.1

Korea

4.4

Turkey

3.3

Mexico

4.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2009 2011 2013 2015 2017 2019 2021 2023 2025

Baseline nominal GDP paths, 2009–25$ trillions

17

Indonesia’s continued demographic dividend will

contribute to this growth performance…

18Sources: UN population projections

Indonesia

Brazil

India

China

50

52

54

56

58

60

62

64

66

68

70

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Share of working-aged population (15-59 yrs), 1980–2050

Indonesia’s remaining

demographic dividend

Sources: Global Development Horizons 2011, based on IMF DOT and Thomson-Reuters.

BRIICK(Brazil, Russia, India,

Indonesia, China, and Korea Rep)

G3(Euro Area,

Japan, United States)

0

5

10

15

20

25

30

35

40

45

50Trade share (percent)

Shares of total LDC bilateral trade

19

0

20

40

60

80

100

120

EM

Advanced

Number of deals

Cross-border M&A investment in LDCs

In a multipolar world, Indonesia will see

stronger trade and investment ties with other

developing countries

20

0

50

100

150

200

250

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

from Advanced Economies

from EM

206

deals

Number of deals

(right axis)

$ million number

37 deals

$ 8.6

billion

$1 billion

It will also become an important destination for

foreign direct investment

Sources: Global Development Horizons 2011, based on Thomson-Reuters.

Conclusion

• Rapid globalization and expected higher growth rates

in emerging market economies will translate into

greater economic influence for developing countries

• For Indonesia to realize this potential as a key driver

of global growth:

– Productivity growth through technological adoption and factor

reallocation

– Sustained levels of investment in human capital to harness

the demographic dividend,

– Continued prudence in macroeconomic policymaking

• Conduct foreign economic policy in line with

Indonesia’s growing presence and economic

responsibility

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