The International Monetary Fund is maintaining its growth forecasts for Indonesia, saying that steady exports and investment will support the momentum of growth, Milan Zavadjil, assistant director in the Asia and Pacific department, told Reuters in an interview.
"Our overall view is the economy has considerable momentum, that it is quite strong, so we are not going to change our projections for growth," he said.
Zavadjil, in Jakarta for an annual meeting with government officials to discuss the country's economic progress, said the IMF was projecting the economy to expand by 6.1% in 2008 and 6.3% in 2009. Growth last year stood at 6.3%.
Some analysts believe the decision to hike fuel prices by an average 28.7% will cut consumer demand, the major contributor to growth.
Zavadjil said the fuel price hike was likely to push up inflation and prompt a further interest rate hike, but the overall impact on growth may not be too significant due to strong exports and investment in sectors such as commodities and mining.
He noted that demand for Indonesia’s export products remained strong and export performance was buoyed by wide diversification.
IMF country representative Stephen Schwartz said annual inflation is likely to hit around 11.5% by end-2008 due to the fuel price hike but it should ease to around 7.5% by the end of 2009.
"Indonesia is relatively well-positioned to weather a global slowdown, given its reliance on commodity exports, which are expected to remain strong," he said.
Vice President Jusuf Kalla meanwhile said Tuesday that growth could touch 8-9% in 2010 from 6.4% this year spurred in part by infrastructure development.
Kalla said the government would have more room to develop the country's infrastructure by having a lower subsidy bill following the fuel price rises.
"All our subsidies would be reduced. We will, therefore, have extra savings," Kalla told an investment forum. "I can tell you that in 2010 it would be very easy to make it 8-9%."
The fuel price rise also saw a return of confidence in the international bond market, with the government selling Rp8.95 trillion ($958 million) of bonds, according to a finance ministry statement on Tuesday, reported by Bloomberg.
Overseas investors picked up 70% of the debt, taking foreign holdings to a new record high. "Foreign investors have confidence in Indonesia's long- term economy and debt management system," said Rahmat Waluyanto, Director General of the Debt Management office at the ministry.
Foreign investors held Rp87 trillion of government bonds as of the end of April, compared with Rp86.19 trillion at the end of April, Waluyanto said.
Indonesia’s international image was also boosted by an article by respected Bloomberg columnist William Pesek, who wrote that it was time for Goldman Sachs to add Indonesia to its BRIC (Brazil, Russia, India, China) grouping.
He quoted Goldman economist Jim O'Neill, who created the BRIC concept, as saying that if he was to revise the BRIC list, Indonesia would be a contender. “Of them, we would rate Mexico as closer to a BRIC status than Indonesia, but it would not be far behind.”