Indonesia’s economy expanded 4 percent in the second quarter, the fastest pace in Southeast Asia, as low borrowing costs and the re-election of President Susilo Bambang Yudhoyono buoyed consumer spending.

Gross domestic product grew faster than the 3.8 percent median forecast of 17 economists in a Bloomberg News survey, compared with 4.4 percent gain in the previous three months, the Central Statistics Bureau said today.

Gains in services, construction and manufacturing helped Indonesia’s $513 billion economy resist the global recession and the threat of terrorist attacks such as those that killed nine people in Jakarta last month. Domestic demand and foreign investors drove the rupiah 12 percent higher this year, the most of any Asian currency, and the Jakarta Composite index is the region’s second-best performing.

“The higher than expected growth gives a strong signal to foreign investors that our economy is resilient,” said Purbaya Yudhi Sadewa, chief economist at PT Danareksa Sekuritas in Jakarta, who forecasts an economic expansion of 4.8 percent this year. “The numbers confirm that our economy bottomed out in the first quarter.”

Indonesia’s rupiah gained 0.4 percent to 9,930 against the dollar at 3:03 p.m. in Jakarta and is the year’s best performing among 10 Asia-Pacific currencies tracked by Bloomberg. Indonesia’s benchmark stock index, which has advanced 76 percent this year, rose 1.7 percent.

Plot Foiled

Consumer confidence in Indonesia jumped in July to the highest level since December 2004, the year Yudhoyono first took office. The seventh straight monthly increase in the index compiled by the central bank was partly due to July’s peaceful presidential election, Bank Indonesia said.

Seventeen days after the end of the second quarter, two suicide bombers killed themselves and seven people at the JW Marriott and Ritz Carlton hotels in Jakarta in Indonesia’s first terrorist attack since 2005. On Aug. 8, police killed three terrorists and foiled an attempt to attack Yudhoyono’s residence.

Efforts by authorities to break up the terrorism network in part helped Yudhoyono keep Indonesia free of terrorist attacks for the past four years and boosted the president’s popularity. Yudhoyono won 60.8 percent of the votes in elections held on July 8.

Commercial Banks

Spending by consumers in Southeast Asia’s largest economy has been stoked by lower borrowing costs, with Bank Indonesia cutting its benchmark interest rate nine times since December. That’s made the nation’s central bank “one of the most aggressive in the region,” according to Chetan Ahya, an economist at Morgan Stanley in Singapore.

Consumption grew 4.8 percent in the quarter, the statistics agency said. Government spending rose 17 percent, while the services sector growth accelerated 7.4 percent.

Lending by Indonesian commercial banks rose to 1,339 trillion rupiah ($135.25 billion) in May from 1,325 trillion rupiah in early January, according to the latest available data from the central bank.

Car sales jumped 10 percent to 109,989 units in the three months to June 30 from 100,263 in the first quarter, according to the Indonesian Automotive Industries Association.

Southeast Asia’s largest economy expanded 2.3 percent in the three months ended June 30 from the previous quarter.

Robust Demand

Indonesia’s economy was “saved” from the worst of the global recession by robust domestic demand, Vice President designate Boediono said in Singapore on July 28. Growth this year will be about 4 percent, he added.

“We have gone through the worst of the crisis,” Boediono said. “Now we’re seeing some light at the end of the tunnel.”

The government plans to unveil policy measures to spur investment and improve infrastructure within the first 100 days of the next administration taking office, he said.

Yudhoyono’s second five-year term begins Oct. 20. The president was re-elected last month with the support of more than 60 percent of the nation’s 176 million voters.

Income for Indonesian plantation farmers jumped 5.2 percent in the six months from December to June, according to an index compiled by the statistics bureau.

Palm oil futures are up 37 percent this year, after a 52 percent decline in the second half of 2008. Prices of rubber shipped from Belawan, Indonesia’s biggest export port, have risen 44 percent this year, after plunging 55 percent in the last three months of 2008. Indonesia is the world’s largest producer of palm oil and second-largest producer of rubber.

Vietnam, Thailand

Indonesia’s second-quarter growth is the fastest in the region followed by Vietnam, which expanded 3.9 percent in the same period. Singapore’s economy contracted 3.7 percent and Thailand’s central bank forecasts its GDP shrank 5.4 percent in the second quarter.

“Indonesia has proven most resilient among the Southeast Asian economies in the face of the global downturn,” said David Cohen, an economist at Action Economics in Singapore. “The turnaround in global export demand should help sustain momentum in Indonesia.”

To contact the reporter on this story: Aloysius Unditu in Jakarta at [email protected];

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