After China and India, Indonesia is the fastest growing economy among the G20

By Alvin Darlanika Soedarjo

 Indonesia’s economy, Southeast Asia’s biggest, grew 4.5 percent last year and is on track to lead the region’s recovery from the global economic crisis, officials said Wednesday. Resilient domestic demand, stimulus spending and political stability helped the mainly Muslim nation of 234 million people weather the economic turbulence of 2009 and emerge poised to resume its pre-crisis growth trajectory.

Last year’s growth was down from 6.1 percent in 2008 but above government forecasts of 4.3 percent and puts Indonesia on track to hit its 5.5-percent target for 2010, officials and analysts said. “Domestic factors such as elections, fiscal stimulus and growing infrastructure projects helped Indonesia in 2009,” Statistics Agency deputy chairman Slamet Sutomo said.

 Capital Economics research consultancy said it forecast growth in gross domestic product (GDP) of six percent this year, well above the government’s target of 5.5 percent. “A sustained and strong upswing is no longer in doubt. Consumer confidence remains at a high level and retail sales have soared,” it said in a report. “We have long expected that GDP growth will accelerate to 6.0 percent this year and then see growth staying above 6.0 percent in 2011, even in the context of upswings elsewhere in Asia probably slowing a little.”

After China and India, Indonesia is the fastest growing economy among the G20 group of rich and developing economies. President Susilo Bambang Yudhoyono has targeted 7.0-percent growth by the end of his second term in 2014. However risks include corruption-related political instability and red tape, which are hampering investment needed to modernise the country’s creaking infrastructure and remove development bottlenecks, analysts say.

HSBC Asian economist Wellian Wiranto said foreign investment had failed to materialise in levels needed to make a significant contribution to output. “It appears that more reforms are needed on areas ranging from infrastructure provision to labour laws before we could see private investments, in particular, as a significant engine of growth,” he said.

 The local stock market, which barely moved in response to the growth figures, soared more than 80 percent last year but about half the population continues to live on less than two dollars a day. Only around half of the 11.55 trillion rupiah (1.23 billion dollars) earmarked for stimulus spending on infrastructure last year has reportedly been spent.

Chief economic minister Hatta Radjasa said the government would establish “special economic zones” to speed up investment, but provided few details. “Java remains the centre of growth because its infrastructure connectivity is still better than Sumatra or Kalimantan.

In view of that therefore we will develop special economic zones to cover the eastern regions,” he told the state-run Antara news agency. Officials have said there will be no cuts to popular but expensive fuel subsidies this year in order to continue supporting consumer demand, which accounts for about 60 percent of Indonesia’s gross domestic product.

(Kompas)

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