Jakarta, April 8, 2010 – The World Bankâ€™s just-released Indonesia Economic Quarterly reports that Indonesiaâ€™s economy accelerated through 2009, with growth ending the year above pre-crisis averages. The previous yearâ€™s downturn appears to have had limited impact on peopleâ€™s access to work and welfare, and what impact it did have appears to have waned by late 2009. With the stronger economy, the Quarterly states that policy makers now need to build further on this growth momentum:
* Protect the economy from volatility in the global economy, by reducing the exposure of the budget to swings in commodity prices
* Invest more resources in public goods and social services
* Foster a stronger investment climate and more effective bureaucracy
* Ensure economic growth leads to improved living standards for all Indonesians
The outlook for Indonesiaâ€™s economy has improved slightly between December 2009 and March 2010. The economy is expected to grow by 5.6 percent in 2010 (higher than the previous forecast of 5.4 percent) and then by around 6.2 percent or more in 2011.
â€śIndonesiaâ€™s economy should expand by 5.6 per cent in 2010 or even more, with the major drivers of Indonesiaâ€™s growth expected to continue to come from domestic demand, with imports picking up. Moderate price growth should lift householdsâ€™ real purchasing power,â€ť said Enrique Blanco Armas, World Bank Senior Economist for Indonesia. â€śInvestment growth is also expected to pick up in 2010 thanks to higher commodity prices and external demand.
With this positive near-term outlook, the report shifts the focus to medium-term issues.
â€śDevelopments in the global economy have challenged Indonesia, and the economy has performed wellâ€ť said Shubham Chaudhuri, the World Bankâ€™s Lead Economist for Indonesia. â€śBIâ€™s managed large capital inflows and the governmentâ€™s stimulus package added perhaps 1 percentage to GDP growth in 2009. But risks remain and there are near-term issues to monitorâ€ť
These issues include:
* Bank Indonesia has managed recent large capital inflows in a way that has limited the volatility in the rupiah without pressuring domestic prices…or been at high cost to the budget
* The ASEAN-China Free Trade Agreement has continued to be implemented, appears to have had little impact and offers significant long-term opportunities for Indonesia
* But the budget is being impacted by volatile world oil prices, pushing up the cost of subsidies and making planning more difficult and spending less effective, particularly for education
Maintaining Indonesiaâ€™s growth into the longer-term needs better support for investors, systems to protect vulnerable Indonesians and ensure all benefit from the countryâ€™s growth, and a government able to deliver services effectively, as the government addresses in its medium-term development plan.
â€śFor Indonesia to rise to its potential, investments must be made in the quality of government services, infrastructure accessible to all, and rules and regulations that support investorsâ€ť said Shubham Chaudhuri.