World Bank predicts clear skies for Indonesia's economy

Tuesday, 15 September 2009

The Jakarta Post

The World Bank has revised up its forecast of Indonesia's economic growth this year to 4.3 percent thanks to high spending on legislative and presidential elections, as well as faster government expenditure disbursements.

The World Bank previously predicted the economy would expand 3.5 percent this year. But domestic consumption propelled the economy into recovery by mid-2009, according to latest World Bank report titled Indonesia Economic Quarterly: Clearing Skies issued Monday.

The 4.3 percent growth forecast is in line with that of government.

"Indonesia's large domestic market, along with the fact that it was never highly dependent on exports, was always Indonesia's saving grace in this global financial crisis," said Joachim von Amsberg, World Bank's country director for Indonesia.

"These factors, coupled with a strong banking sector and prudent macroeconomic management, have allowed Indonesia to weather the storm on a much stronger footing than its regional neighbors."

The report noted that the banking sector proved far more robust than many expected, although the number of new loans had remained constrained. And financial markets continued strengthening through mid-2009, allowing the government to continue financing its budget through the bond market.

In the revised 2009 state budget, the deficit is originally set at 2.4 percent of GDP. But the World Bank now says that the realized 2009 budget deficit would probably be smaller at 2.2 percent of the GDP.

"The mid-2009 trend towards gradual recovery is to continue over the coming year and a half. Domestic demand is likely to continue as the main driver of growth, as the government continues to disburse its stimulus and in 2010, investors will regain confidence," said the Bank senior economist Shubham Chauduri.

State Minister for National Development Planning Paskah Suzetta welcomed the report, saying it was good news for Indonesia but noted that Indonesia would need to fix some regulations to smoothen the disbursement of the Rp 73.3 trillion stimulus economic package.

Of the Rp 12.2 trillion allocated in infrastructure stimulus, only 14 percent has been disbursed as of August, which makes analysts conclude the stimulus has made little contribution to the economy.

The World Bank predicted Indonesia's economy will accelerate to 5.4 percent growth in 2010, up from its initial prediction of 5 percent. The government aims to reach a 5.5 percent growth target next year.