Categorized | EcoBiz

Beating The Forecasts, Again

Indonesia could exceed growth forecasts if the government gets serious about speeding infrastructure development, accelerating budget spending and expanding the nation’s manufacturing, a number of leading global banks have said.

The government expects the economy, measured by gross domestic product, to grow 6.4 percent this year, faster than last year’s 6.1 percent.

A report from Standard Chartered Bank, released on Tuesday, however, said it believed “the prospects for Indonesia’s annual GDP growth to reach its full potential of 8-9 percent, will depend on the government’s ability to accelerate infrastructure development.”

The British-based bank noted that less than 5 percent of the $145 billion worth of infrastructure projects earmarked at the beginning of President Susilo Bambang Yudhoyono’s first term (2004-2009) had been realized.

“Slow land clearance for projects has been widely cited as the biggest hurdle,” StanChart said. “Even if the House of Representatives passes the land clearance bill into law in the second half of 2011, it remains to be seen whether the government has the political will to enforce it.”

StanChart judged government spending to be far below target this year, and forecast a deficit of 1.5 percent of GDP, or even lower. That compares to 1.8 percent — equivalent to Rp 125 trillion ($14.5 billion) — set in the government’s 2011 budget. In 2010, due to slow budget disbursement, the deficit was recorded at 0.6 percent of GDP, way below the 2.1 percent target.

According to the latest draft of the revised state-budget obtained by Jakarta Globe, the deficit could soar to 2.5 percent this year, equivalent to Rp 178 trillion, if the government did not increase the price of subsidized fuels by 10 percent to 20 percent.

Although StanChart commented that, ultimately, a decision on a price hike was the president’s to make, it cited the views of many political analysts who said that a fuel price rise was unlikely to occur during 2011.

The World Bank also released a report on Indonesia on Tuesday. The bank’s top economist said Indonesia could exceed its own and the World Bank’s expectations for economic growth if it pursued policies to boost manufacturing and wisely manage its natural resources.

The Washington-based lender said it did not change its baseline projection for growth in Southeast Asia’s largest economy — 6.5 percent for 2011 and 6.7 percent for 2012 — though it said recent global developments highlighted rising uncertainty.

“Recent turbulence in financial markets related to the eurozone debt crisis is a key source of this uncertainty and a reminder of Indonesia’s sensitivity to movements in short-term capital flows,” the bank said in the report.

The World Bank also echoed StanChart’s comments on high oil prices, slow budget disbursement and infrastructure. It said poor infrastructure was “one of the biggest obstacles to firms operating in Indonesia.”

At a public seminar in Jakarta, World Bank chief economist Justin Yifu Lin said Indonesia was capable of replicating the success of other Asian countries like Taiwan, which now has only 45 percent of workers employed in the agricultural sector, compared with 75 percent in 1979. The bank says 70 percent of Indonesia’s 110 million-strong workforce is engaged in the sector.

Still, the government needs discipline if it wants to achieve being one of the world’s top 10 economies by 2025.

“Indonesia is a country with all kinds of potential,” Lin said. “The fate, the destiny, of Indonesia is in Indonesian hands.”

Source: The Jakarta Globe

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This post was written by:

Bambang - who has written 128 posts on Good News From Indonesia.

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