Indonesia, the largest economy in Southeast Asia, has shown remarkable economic growth in 2012 despite the sluggish global economy, almost growing as fast as China and India, Asia’s two perennial economic powerhouses.
According to the country’s statistic agency BPS, Indonesia recorded 6.3, 6.4 and 6.2 percent growths during the first three quarters of 2012 respectively, among the fastest in the region.
Among the members of the Association of Southeast Asian Nations (ASEAN), only the Philippines grew as fast as Indonesia, which expects to grow by not less than 6 percent in 2012.
The Bank Indonesia (BI), the country’s central bank, said that Indonesia’s economy could grow by 6.3 percent in 2012 amid weak export performance caused by the global economic slowdown.
The forecast is slightly lower than the 6.5 percent attained in 2011, which was ranked second fastest in Asia after China.
The ongoing global crisis continues to affect the country’s exports. According to data issued by the trade ministry, the country’s export dropped by 7.68 percent in October compared to the corresponding period in 2011.
This has prompted Indonesia to revise its export target this year to 190 billion U.S. dollars from 205 billion U.S. dollars.
But because of its huge population, Indonesia was able to weather the effects of the global crisis by concentrating on domestic demand.
“Indonesia’s economy now is mostly driven by the domestic demand,” Eric Sugandi, an Indonesian economist at Standard Charter told Xinhua recently, adding that household consumption now accounts for 55 percent of the country’s gross domestic product ( GDP).
Indonesian President Susilo Bambang Yudhoyono has emphasized in a seminar held in November that Indonesia’s economic growth should be anchored on domestic consumption as an export-oriented economic model is not suitable for the country.
Yudhoyono said the government would provide subsidies for poor people in order to boost their purchasing power.
Indonesian Coordinating Minister for the Economy Hatta Radjasa said that strong domestic consumption and investments would be the main “drivers” of the Indonesian economy.
Hatta said that foreign direct investments (FDI) have continued to pour into the country during the last few years. “The FDIs and domestic demand combined would constitute 3.3 percent in the country’s overall growth next year,” he said.
According to the data released by Indonesian Investment Coordinating Agency (BKPM), total inflow of FDI to the country reached 8.52 billion U.S. dollars in the third quarter of 2012, or 25 percent higher from the same period in 2011.
Finance Minister Agus Martowardojo also revealed that Indonesia is planning to provide tax incentives for investors to further attract foreign investments into the country.
To boost domestic consumption, Indonesia recently made a policy of raising the non-tax income from 15.8 million rupiah (about 1, 638 U.S. dollars ) to 24.3 million rupiah (about 2,524 U.S. dollars) since 2013. Furthermore, a regulation issued by local governments to sharply increase minimum wage for labor across the country will also beef up domestic demand, analysts said.
In a recent survey of global Consumer Confidence Index conducted by Nelsen, Indonesian consumers are the most optimistic in the world, ranking first with a score of 119.
Indonesia has a total population of 240 million, of which 45 million now belong to the middle-class. By the year of 2030, the number will be increased by additional 90 million, according to a recent study.
On inflation, the consumer price index (CPI) was recorded at 0. 07 percent in November, down from 0.16 percent a month earlier.
The Indonesian central bank considers as “controllable” the present inflation rate since it is still below the range anticipated by the government, which is between 3.5 to 5.5 percent. The central bank is likely to continue setting the rate benchmark at record-low of 5.75 percent for 2013.
The record low interest rate benchmark is highly expected to further provide a sustainable investment climate and spur the economic growth.
In the third quarter of 2012, Indonesia’s current account deficit takes up 2.4 percent from the country’s GDP, or down from 3.5 percent in the previous quarter.
In addition, the 3-year low rupiah will also help in narrowing the deficit since it would discourage imports and encourage exports. The Asia Development Bank (ADB) predicted Indonesia’s current account deficit would fell to 1.4 percent of its GDP in 2013.
The World Bank recently increased its forecast for Indonesia’s growth in 2013 from 6.1 percent to 6.3 percent. Indonesian central bank governor Darmin Nasution was even more optimistic, saying that the country’s GDP growth may reach the upper range of the central bank’s previous forecast of 6.3 to 6.7 percent.