Indonesian Economy Growth Soars the Highest in 11 Years

Jakarta, Indonesia | February 18, 2008 by D-8 Secretariat

Indonesia, one of Southeast Asia’s biggest economy, expanded near the fastest pace in 10 years as declining borrowing costs encouraged companies to invest and spurred consumer spending. Official data showed on Friday revealed that Indonesia ’s full-year growth for 2007 clocked in at 6.32 percent, the fastest rate since the country was hit by the Asian financial crisis 11 years ago.

The US$364-billion economy grew 6.25 percent in the three months ended December 31 from a year earlier, after expanding 6.5 percent in the third quarter, the Central Statistics Bureau said yesterday. That’s less than the median 6.4 percent forecast of 16 economists surveyed by Bloomberg News, but slightly higher than the government forecast of 6.30 percent.

The Indonesian economy contracted 2.15 percent however in the last quarter of 2007 compared to a year earlier, but grew 6.25 percent compared to the same quarter in 2006, said a deputy chairman of the Indonesian statistics bureau.

Record coal prices and surging income from sales of cocoa and cooking oil is encouraging spending on cars, motorbikes and mobile phones. A 4.75-percentage point cut in borrowing costs since May 2006 has also stoked investment at companies such as PT Lautan Luas, a chemical maker.

“We are actually seeing pretty broad-based economic growth in Indonesia,” said Ai Ling Ngiam, director of sovereign ratings at Fitch Ratings. “Several of the sectors key to development are accelerating and more importantly we are seeing that investment activity, especially private sector investment, has been coming back more strongly.” Fitch Ratings has raised Indonesia’s credit rating to the highest in a decade, citing the buoyant outlook for the economy, rising foreign-exchange reserves and improved government finances.

Private consumption, which represents about 70 percent of the economy, rose 5.6 percent in the fourth quarter, up from 5.3 in the third and the fastest pace in almost four years.

Since December 2005, when Bank Indonesia raised its policy rate to 12.75 percent, inflation cooled and the rupiah gained. Inflation rose 7.4 percent in January from a year earlier, down from a high of 18.4 percent in November 2005. The rupiah has risen 5.8 percent against the dollar since the end of 2005.

Coal prices, which reached a record this month, and the highest cocoa price since 1985 helped boost exports 14 percent to a record US$30.9 billion in the quarter, the statistics bureau said.

Rising prices of farm products have boosted rural incomes for about 110 million people.Banks are also benefiting. PT Bank Danamon Indonesia said this week 2007 profit rose 61 percent, thanks to a 24-percent jump in new loans, and plans 78 new branches.

Indonesian President, Susilo Bambang Yudhoyono, said Indonesia may trim its gross domestic product growth forecast for 2008 to 6.4 percent, down from 6.8 percent due to the expected slowdown in the global economy. The government is expected to submit its revised 2008 state budget to the lower house of parliament by the end of the month.

The government is also planning to raise its inflation target to 6.5 percent from 6.0 percent, Yudhoyono said during a gathering with provincial administration. The government’s budget deficit is now forecast to come in at 2.0 percent of GDP, up from 1.7 percent, the president said, while the price of crude oil is projected to average 83 instead of 60 dollars per barrel.

Indonesia is currently serving the leadership of D-8 Organization.

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