14/07/2011 (Worldcrop.com) - Indonesia finally seems poised for economic success. All the signs are that this sprawling archipelago could be the next Brazil.

It’s bounced back vigorously from the Asian financial crisis just over a decade ago, thanks to political and fiscal reforms that in turn have attracted a sharp rise in foreign direct investment. The government is slowly but surely getting to grips with corruption – right now the country is a better bet than for many years.

The parallel with Brazil largely hinges on Indonesia’s enviably abundant and largely untapped natural resources. It’s the world’s top producer of palm oil, and in the top three for exporting cocoa, coffee, coal and natural gas. But like Brazil, Indonesia has a growing population to feed. Food security is top of the political agenda.

Indonesia was partially shielded from the worst of the recession by possessing a very inward-looking economy – domestic consumption accounts for 60% of its GDP. Rice is the staple food for the vast majority of Indonesia’s 250 million people and – fortunately – the country is by and large self-sufficient. And the government is showing signs of being forward-thinking – it’s earmarked an extra two million hectares for rice cultivation, and pledged to speed up the construction of an integrated 480,000-hectare food estate, in the eastern province of Papua.

But it’s palm oil where Indonesia is the true world leader. Last year it produced 22 million tonnes of palm oil, 26% of which was consumed domestically. The government has an aggressive export tax policy on palm oil (and cocoa too), to encourage value-adding downstream processing. Palm oil – a vital feedstock for much of the world’s biodiesel – may well become as strategically vital an asset in the long-term as crude oil and the government is currently contemplating how best to manage this commodity, by perhaps imposing a 30% export quota from 2020.

But before Indonesia can join the ranks of the BRICs it will need to sort out two things, at least. It will have to finance somehow the necessary infrastructure developments for the country’s more far-flung regions. And it needs to address its daft policy of subsidising fuel for all motorists. This is an unsustainable drain on finances, likely to cost the country over $9 billion this year, or 2.5% of GDP. The cash would be far better spent on building the vital infrastructure to attract investment and boost productivity in Indonesia’s crucial commodity sectors.