Indonesia's economy will not only weather the expected global slowdown next year, but will expand by 6.2 percent, the fastest growth rate for 10 years, says the World Bank's latest economic assessment on the country and other Asian nations.
The global economy is heading for a downturn in 2007, driven mainly by a slowdown in the U.S., as well as China due to its policy of putting the brakes on its economy so as to prevent it from overheating.
Speaking at the World Bank East Asia November Update launch in Jakarta on Tuesday, WB economist William Walace said Indonesia would be little affected by the phenomenon, and predicted that the country would grow at 6.2 percent, only slightly lower than the government's forecast of 6.3 percent.
The projection is generally higher than those for other emerging economies, such as Malaysia of 5.5 percent, the Philippines on 5.7 percent and Thailand on 4.6 percent.
Walace said Indonesia's share of global trade was relatively smaller than other countries in the East Asia region, and the economy was less globally integrated.
"So when things were robust for the last few years, this was the downside for Indonesia as its growth would have been higher had it been more integrated. But when global growth slows down, of course you get the upside by not having been so integrated," Walace explained.
Walace said it was expected that the global downturn would continue for the next one to one-and-a-half years.
From Washington, the Bank's chief economist, Homi Kharas, said via a video linkup that one of the more direct effects of the global downturn for emerging East Asia countries like Indonesia was the fact that China's exports to the U.S. would decline due to the U.S. downturn.
That in turn would affect China's demand for intermediate products from other East Asian countries.
To cope with that, Kharas said a pick-up in domestic demand was the answer as this could quite substantially mitigate the losses from the decrease in exports to China.
"The key policy message for the government is to think about what kind of things can be done now in order to stimulate domestic demand," Kharas said.
Kharas further suggested that middle-income countries, including Indonesia, had to specialize by focusing on the best products the country could produce so as to maximize the country's comparative advantages.
"You need to have a process. In addition to doing more to the things you do well at, you also have to do less of some other things," he said.
Adding to Kharas's comments, Walace said that China's demand for Indonesian commodities, such as coal, rubber and crude palm oil, had always been high. Since these goods were not intermediate products, he concluded that China's demand for such goods would not decline.
"China's demand for those commodities won't slow down as much as their demand for the intermediates, so Indonesia will be slightly more protected compared to other countries," he said.
According to the Central Statistics Agency (BPS), China was the fourth biggest importer of Indonesian non-oil and gas products up to the end of September, booking a total value of US$3.9 billion.
Wallace said that Indonesia's economy could grow even more robustly in 2008 and 2009, provided that there were improvements in the investment climate and the country's infrastructure.
"The government has to address issues like legal certainty, labor reform, burden of regulations, and the tax and customs laws."
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