Raft of Positive Data Points to Solid Economy for Indonesia

Jakarta Globe, March 18, 2010

Polished performance: Garuda says it expects profit to surge.

Officials, analysts and economists who have held fast and predicted that Indonesia’s economy is destined for great things in 2010 were rewarded with a slew of good news on Wednesday, including a jump in the tax base, fresh foreign investment, rises in corporate ratings and earnings, and a surging stock market and rupiah.

The Jakarta Composite Index jumped to its highest close in two years, largely on the back of a US Federal Reserve pledge to keep interest rates low, prompting foreign funds to continue a buying spree begun last week. The rupiah surged to its highest level against the dollar since August 2008, reaching 9,115 as stock trading in Jakarta closed.

As stocks were flying, Finance Minister Sri Mulyani Indrawati said more than half of the registered taxpayers had already submitted their tax returns for this year, a sign that a drive to encourage people to register and pay taxes is working. Tax payments account for around 70 percent of state revenue. Changes last year to airport-departure taxes that see those without tax registrations face punitive charges are credited for much of the rise.

Meanwhile, four Australian companies have agreed to invest more than $1 billion to expand their businesses in Indonesia this year, said Gita Wirjawan, chairman of the Investment Coordinating Board (BKPM), who met with investors in Australia last week.

Not to be outdone, national flag carrier PT Garuda Indonesia announced that it expected net profit to rise by 15 percent this year on strong passenger growth, thanks to the improving economy. Two other state firms, PT Perusahaan Listrik Negara and PT Perusahaan Gas Negara, have also received good news. Rating agency Standard & Poor’s raised their corporate credit ratings, along with that of state PT Telekomunikasi Selular, the country’s biggest cellular network operator.

Chatib Basri, a senior economist from the University of Indonesia, said the good economic news was no accident. He traced its roots to the early 2000s.

“It’s not a miracle that happened in one night, and there’s nothing strange about it,” he said. “Our economic recovery [after the 1997-98 Asian financial crisis] slowly started during Megawati Sukarnoputri’s presidency, as the democratic process became more civilized. People have become more reasonable in looking at the economy despite political issues, such as the [Bank] Century bailout.”

The JCI gave investors an 85 percent return last year, he pointed out, noting that “the first sign of a growing economy is the rise in its stock market.”

He said the only remaining obstacle to Indonesia rubbing shoulders with the vaunted “BRICs” — Brazil, Russia, India and China — is its lack of infrastructure.

“That’s the main problem, and the government must not delay,” he said. “In a growing economy, demand will increase and capacity must be able to meet it.”