Indonesia

While many European countries are struggling to avoid slipping back into recession, because of the deepening debt crisis engulfing the eurozone, one of the main problems facing the Indonesian economy appears to be how to avoid economic overheating.

Indonesia's capital markets should be able to ride out the worst of the European debt crisis, backed by expectations of strong growth and solid levels of liquidity, though the Greek economic crisis is starting to reach the country's shores.

Indonesia is looking to bring its property laws into line with many of its neighbours by allowing foreigners to directly own real estate. Jakarta will have to strike a balance between the need to attract capital from abroad and reassuring the public that foreign ownership does not undermine the country's sovereignty.

Last year, the IMF published a report on Indonesia, praising its improved economic resilience, singling out its banking sector. In a press release, the fund noted the “relatively strong corporate and banking sector balance sheet positions, high capitalisation and profitability of the banking system”. It added that financial soundness had improved in past years, particularly in terms of rising profitability and a strengthening capital base.

Indonesia is seeking to further develop its Islamic banking sector, looking to tap into the growing market for sharia-compliant financial instruments, though it still has some way to go before being able to match the major players in the segment.

Having weathered the impact of the international financial crisis, the insurance industry expects steady growth in 2010. However, the landscape is shifting more quickly as some players look to boost their presence on the undervalued market, liberalisation takes effect and the emergent Islamic sector moves forward.