Indonesia GDP May Grow as Little as 3%, Pangestu Says

Bloomberg, By Shamim Adam

March 27 (Bloomberg) -- Indonesia’s economy may expand as little as 3 percent this year, the slowest in a decade, as exports slump and commodity prices plunge from record levels, Trade Minister Mari Pangestu said.

The value of overseas shipments may shrink between 15 percent and 20 percent in 2009, while the volume of exports may contract between 5 percent and 10 percent, Pangestu said in an interview in Singapore yesterday. Still, election spending and domestic consumption may support growth in Southeast Asia’s largest economy, she said.

Manufacturers in the U.S., Europe and Asia are struggling as the worst recession since World War II deepens, prompting the World Trade Organization to forecast a 9 percent plunge in global trade this year. Indonesia has unveiled a $6 billion stimulus to boost consumer spending as the global slowdown pummels the nation’s exports.

“There has been a sharp drop in demand from the U.S., Europe and Japan, but China and India has been a bit more stable,” Pangestu said. “If we can maintain domestic consumption growth, our economy can grow at a minimum of 3 percent. If all the fiscal stimulus works, that can go up to 4 percent to 4.5 percent.”

The government expects the $433 billion economy to expand 4.5 percent this year after climbing 6.1 percent in 2008, while the central bank is predicting 4 percent growth. An expansion of 3 percent this year would be the slowest since the economy grew 0.8 percent in 1999, according to data from the International Monetary Fund.

Exports Plunge

Indonesian exports fell the most in more than 22 years in January, plunging 35.5 percent to $7.15 billion. In neighboring Singapore, overseas shipments have dropped for 10 consecutive months, while Japan, the biggest buyer of Indonesian goods, saw its exports decline a record 49 percent in February.

Overseas sales in February probably were between $7 billion and $8 billion, and may average around that level every month for most of this year, Pangestu said. Exporters shipped $136.76 billion of goods last year. The Central Statistics Bureau will release the next trade report on April 1.

While overseas sales volumes of coal and palm oil have remained steady, exports of metals continue to slow, she said. Indonesia is the world’s biggest palm oil producer and the largest exporter of power-station coal.

‘All Hit’

“Anything to do with steel, automotive and electronics are all being affected,” Pangestu said. “Metals that are used for construction or electronics are all hit.”

Steel output in Indonesia probably fell 40 percent in the first quarter this year from a year ago, according to a newspaper report this week that cited Hidajat Triseputro, executive director of the Indonesian Iron and Steel Industry Association.

The decline in exports and its impact on unemployment in both rural communities and cities is a big concern, Pangestu said. Still, election spending is helping boost revenues for hotels, restaurants and garment and printing firms as political parties travel across the country to woo voters, she said.

Indonesians go to the polls on April 9, and parties which win 20 percent of parliament’s 560 seats will be able to nominate a candidate for the presidential election in July.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net