Indonesia's Economic Growth at 6.45% in Q4 Last Year

Jakarta Globe, Novrida Manurung & Karl Lester M. Yap, February 03, 2012

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Indonesia’s economic growth probably exceeded 6 percent for a fifth quarter in the October-December period last year as domestic demand helped Southeast Asia’s largest economy withstand the European debt turmoil that has hurt exports across Asia.

Gross domestic product increased 6.45 percent in the fourth quarter from a year earlier, compared with a 6.5 percent pace in the previous three months, according to the median of 17 estimates in a Bloomberg News survey ahead of a government report due on Monday.

The economy may have grown 6.5 percent last year, Bank Indonesia said in a Jan. 12 statement. That’s the fastest pace since 1996, according to data compiled by Bloomberg.

Bank Indonesia will keep its benchmark rate at a record-low 6 percent, according to 11 of 15 estimates before a Feb. 9 decision.

Indonesia’s more than $700 billion economy is outperforming its neighbors including Thailand and the Philippines, as two rate cuts in the last quarter aided President Susilo Bambang Yudhoyono’s efforts to increase gross domestic product by an average 6.6 percent a year. In the past two months, the country regained investment-grade rating from Moody’s Investors Service and Fitch Ratings for the first time since the Asian financial crisis in recent weeks, boosting investment prospects as it plans transport and utility projects. Domestic spending accounts for about two thirds of economic activity.

“The government needs to continue to build up infrastructure to sustain this kind of growth,” said Leslie Tang, an economist at OSK-DMG Group in Singapore. “Rising incomes are feeding into consumption which is supporting the domestic economy. There is no necessity for the central bank to cut rates further unless the external situation deteriorates significantly.”

Indonesia’s policy makers have signaled they are prepared to support the economy with monetary and fiscal stimulus as Europe’s protracted sovereign-debt crisis threatens global expansion and crimps demand for Asian exports.

Bank Indonesia, which kept its benchmark rate unchanged in January for a second month after reductions in November and October, has widened the lower range of its interbank lending rate since then to push borrowing costs lower. The government said in September it was preparing a stimulus package, and Bambang Brodjonegoro, head of fiscal policy at the finance ministry, said last month the country will increase spending to bolster growth and limit the impact of a global slowdown.

Yudhoyono’s push to boost infrastructure and curb corruption has lured funds, helping the nation’s bonds return 5.7 percent this year, the biggest gainers among 10 local-currency debt indexes compiled by HSBC Holdings. The Indonesian rupiah reached a three-month high last month.

Indonesia’s parliament approved in December a land-acquisition bill that will allow the government to accelerate road, port and airport projects.

Bloomberg