Indonesia Economy Reaches 15-Year High


The Jakarta Globe | February 07, 2012


The economy grew 6.5 percent last year, its biggest expansion since the 1997-98 Asian financial crisis, as domestic consumption helped shield the country from the global economic turmoil.

“There was growth in almost all sectors,” Suryamin, the acting chairman of the Central Statistics Agency (BPS), said at a press conference on Monday.

Last year’s growth topped 2010’s 6.1 percent and was the strongest since 1996, when the economy expanded 8 percent, International Monetary Fund data showed.

Along with the expanding economy, per capita income rose 18 percent to Rp 31.8 million ($3,560) last year from Rp 27.1 million in 2010.

The size of Indonesia’s economy was Rp 7,427.1 trillion at the end of 2011.

Despite the global economic turbulence, household consumption, which makes up 56 percent of the nation’s economy, rose 4.6 percent in 2011, helped by low interest rates and easing inflation. It was 4.7 percent in 2010.

“Overall, domestic demand provided the growth cushion even though exports slowed down in the fourth quarter of 2011 and the external balance was a drag,” Deyi Tan and Seen Meng Chew, economists at Morgan Stanley in Singapore, said in a report released on Monday.

The central bank trimmed its key interest rate by a total of 75 basis points in October and November, bringing the rate to a record low 6 percent.

Investment and government spending also accelerated in 2011, rising 8.8 percent and 3.2 percent, respectively. The 2010 figures were  8.5 percent and 0.3 percent, respectively.

Communication and transportation led the sectoral growth with 10.7 percent pace last year, followed by trade, hotels and restaurants with 9.2 percent. Manufacturing, which employs millions of workers, grew 6.2 percent last year.

Economists and businesspeople warned of a less rosy 2012 as a possible global economic slowdown threatens to cut demand for Indonesian exports. Among the country’s key export commodities are crude palm oil, rubber, tin, nickel and coal.

“Our markets overseas are suffering,” said Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo).

He called on the government to focus its attention on the economy, improve the business climate, build more infrastructure and spend less time on politics if it wants to achieve another high growth rate this year.

“Please, don’t get embroiled too much in politics. Get it done and move on,” he said.

Indonesia needs $160 billion through 2014 to develop much-needed infrastructure such as roads, airports, seaports, bridges and toll roads to support an average growth rate of 6.6 percent over the next two years. But graft, an uncertain and unwieldy bureaucracy and overlapping regulations are among the factors keeping investment away.

Despite the strong growth, critics have voiced concerns over Indonesia’s massive wealth gap and rising economic inequality.

The government released a report in January that said the number of poor people in Indonesia fell 130,000 to 29.89 million in September.

However, Hamonangan Ritonga, BPS’s director for social resilience statistics, said the reduction was insignificant and that it was still the rich who were benefiting the most from the growth.