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Economy

Alicia Garcia-Herrero: Seoul and Jakarta -- A match made in heaven

Capital exporter meets capital needs

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The Semanggi overpass is one of several infrastructure projects underway in Jakarta.   © Reuters

South Korea and Indonesia look as though they were made for each other. South Korea has become a net exporter of capital, given its increasingly low return on assets, while Indonesia has a young population and huge capital needs, which ensure a high return on investment. Given its relatively low savings ratio, Indonesia's current-account deficit is understandable. It needs foreign investment -- and that is where South Korea comes in.

South Korea is increasingly looking like Japan in the 1990s, although it has higher growth potential and fewer deflationary pressures. Current-account surpluses are the source of capital that has allowed Japan, and now South Korea, to become huge net external creditors. Few other countries are in that situation, although Germany and Taiwan are other examples.

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