Economy may grow by 4.6% in Q1, supported by elections

The Jakarta Post, JAKARTA | Wed, 04/08/2009 12:03 PM

Stimulating election: A worker in a small T-shirt production house in Jakarta arranges the products ready to hit the streets. Finance Minister Sri Mulyani Indrawati predicted Tuesday Indonesia has grown by 4.6 percent in the first quarter from a year earlier, as elections helped stimulate the economy. JP/P.J. Leo

The economy may have grown by 4.6 percent in the first quarter of the year from a year earlier, as the elections helped pushed up consumption, the finance minister says.

Consumption remains the largest contributor to Indonesia’s economy, making up about 70 percent of the GDP.

Finance Minister Sri Mulyani Indrawati told reporters Tuesday that a number factors in the first three months of the year had helped boost consumption, such as the campaign for the general elections, fuel price cuts, and salary increase for state employees.

“Almost all political parties spent massive amounts on consumption during their campaigns in various activities,” Mulyani said.

“Bank Indonesia predicts that household consumption grew by 4.1 percent, while we predict it grew by 4.6 percent.”

The growth in consumption.

Mulyani added, mitigated slumping export figures and slowing flows of investment amid the global credit crunch.

The Central Statistics Agency (BPS) has reported that non-oil and gas exports contracted 28.34 percent to $12.26 billion in the first two months of this year, from $17.11 billion in the corresponding period last year.

Total exports stood at $14.23 billion in that period this year, a 34.5 percent drop from the $21.73 billion recorded in the same period last year, BPS data shows, with the central bank also cutting its full-year growth forecast to between 3 and 4 percent, down from the initial 4 to 5 percent.

“The recent trend of decreasing imports will also have a significant effect on investment. We predict that investment growth will decrease to 4 percent from 12 percent in the first quarter,” Mulyani said.

Indonesia’s economic growth of 4.6 percent is slower than the 6.1 percent booked in the fourth quarter of last year, but is still fairly respectable as compared to many of its peers in the region amid the global downturn.

Mulyani said the first quarter growth was within the government’s expectations.

“We have told the House of Re-presentatives that economic growth this year will tend to go downward, between 4 and 4.5 percent. That means our first quarter prediction is still achievable,” she said.

Mulyani also said the fiscal sti-mulus, worth Rp 43 trillion, had also contributed in improving consumers’ spending power for consumption in the first quarter.

“The tax cuts and their impact in stimulating purchasing power are already effectively recorded within the economic system during the first quarter as well.”

It forms part of the government’s Rp 73.3 trillion in stimulus package designed to keep the country’s economic wheels oiled and eventually cushion the external economic impacts.

Going forward, Mulyani was upbeat the elections would again help stimulate the economy, in particular consumption.

“We should consider the fact that the election is far from over, as it will proceed to the presidential election in June, which will greatly affect consumption, not to mention the impact of lower fuel prices along with the increase of salaries for state employees,” she said.

The BPS will reveal the official realization of this year’s first quarter economic growth in May.

The Asian Development Bank (ADB) and World Bank forecast Indonesia’s economy to grow this year by 3.4 percent and 3.6 percent, respectively.

Indonesia needs to keep its economy expanding at a respectable rate to help prevent unemployment and keep poverty rates from rising. (hdt)