Indonesia’s growth may accelerate to the fastest pace since before the Asian financial crisis next year on investment and infrastructure spending, even as the faltering global economy may cause expansion to miss a government target, according to the vice finance minister.
Gross domestic product may expand 6.6 percent in 2013, compared with the official budget target of 6.8 percent, Vice Finance Minister Anny Ratnawati said in an interview in her office in Jakarta yesterday. That would be the biggest gain since 1996, based on International Monetary Fund data.
“It’s possible we may need to make a downward correction to the economic growth target but it won’t be far from our current number,” said Ratnawati, 50. The government will boost infrastructure spending to more than 200 trillion rupiah ($21 billion) and will require monthly budget disbursement plans from ministries to speed projects, she said.
Indonesia’s growth has outperformed every major Asian economy after China this year as the world’s fourth-most populous nation lures investment. President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports to improve infrastructure and meet a growth target of an average 6.6 percent by the end of his second term in 2014.
“The key driver for growth in the next year and following years remain the domestic economy,” said Destry Damayanti, chief economist at PT Bank Mandiri in Jakarta. “Next year, we are still expecting the global economy to remain uncertain.”
Indonesia’s economic growth held above 6 percent for an eighth quarter, with GDP rising 6.17 percent in the three months ended Sept. 30 from a year earlier as domestic consumption and rising investment countered an export slump. The government expects expansion of 6.4 percent this year, compared with the budget target of 6.5 percent, Ratnawati said.
“Until next year, the global economy remains uncertain,” said the vice minister, who holds a doctorate in agricultural economies. “To anticipate the slowdown in China, the impact of the commodity slowdown on our state budget, improvement in the quality of state spending becomes important, especially when we’re talking about infrastructure.”
Private consumption increased 5.7 percent in the third quarter from a year earlier, and investment surged 10 percent. Domestic consumption accounted for 63 percent of GDP, investment contributed 33.2 percent, while net exports deducted 0.61 percent from the economy in the third quarter.
L’Oreal SA, the world’s largest cosmetics maker, expects to boost sales in Indonesia by as much as 35 percent over the next five years as an expanding middle class spurs demand. Annual revenue for this year and next will probably rise more than 30 percent in the country, Vismay Sharma, the company’s country chief, said in an Oct. 29 interview. L’Oreal today inaugurates a new West Java plant that will be its largest factory globally.
Policy makers in Southeast Asia’s biggest economy have avoided adding to a February interest-rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. Bank Indonesia will probably keep its benchmark rate at 5.75 percent tomorrow, according to all 16 economists surveyed by Bloomberg News.
The rupiah weakened 0.2 percent to 9,639 per dollar as of 12:07 p.m. in Jakarta. It has fallen more than 6 percent this year, the biggest decline among 11 most-traded Asian currencies tracked by Bloomberg, boosting import costs and reducing the scope for monetary easing.
Indonesia’s exports fell 9.4 percent in September from a year earlier, a report showed last week, a sixth straight month of declines. Consumer prices climbed 4.61 percent in October from a year earlier, pushing inflation to a 13-month high.
“Toward the end of this year, exports will be better and imports will slow down, so the current-account deficit will narrow in the fourth quarter, while capital flows will increase and contribute to a balance-of-payment surplus in the fourth quarter,” Ratnawati said. Pressure on the nation’s currency will stabilize, and “we believe the current level of the rupiah is still comfortable for exporters and importers, as well as for Indonesia’s competitiveness. The fluctuation of the rupiah isn’t too volatile.”
The government expects the rupiah to average 9,300 against the dollar next year, according to the 2013 budget, she reiterated.
The country will probably meet this year’s budget deficit target of 2.23 percent of GDP even as energy subsidies exceed budget assumption on higher oil prices, the vice minister said. The government has reserve funds to pay for the additional subsidy costs, and state spending tends to fall short of target, she said.
Subsidy savings from an increase in electricity rates next year will be used for infrastructure spending, Ratnawati said. The government has the authority to raise subsidized fuel prices if the benchmark Indonesian crude oil exceeds $100 a barrel next year, she said.
The government “hopes” to win an upgrade to investment grade rating from Standard & Poor’s next year, she said.
“S&P is concerned about our subsidies and the general election,” Ratnawati said. “We’ve told them there’s no problem on fiscal sustainability as we have the ability to raise fuel prices and we’ll increase the power tariff next year,” while the election of an opposition candidate as Jakarta’s governor this year showed Indonesia’s economy can withstand political changes, she said.
Indonesia aims to execute 55 projects valued at $40 billion this year under its so-called Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development, which aims to boost investment in infrastructure across six economic corridors, the vice minister said. As of the end of July, 38 percent of the targeted projects have been implemented, she said. Projects carried out last year totaled $38 billion.
To contact the reporters on this story: Novrida Manurung in Jakarta at firstname.lastname@example.org
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