Indonesia: Economy falters as global crisis hits exports

Jakarta, 18 Feb. (AKI/Jakarta Post) - The Indonesian economy grew at its slowest rate in two years in the fourth quarter of 2008 as the global economic slowdown slashed commodity prices and export demand.

The Central Statistics Agency (BPS) reported on Monday that the economy expanded by 5.2 percent in the fourth quarter of 2008 from a year earlier, slower than the annualised growth rate of 6.4 percent recorded in the previous quarter.

Worse still, on a quarterly basis, the economy contracted by 3.6 percent in the fourth quarter. But BPS head Rusman Heriawan said that a similar contraction had occurred in the same period in the past two years.

”This was not surprising as the economy usually contracts in the fourth quarter compared to the third quarter, as industrial output slows and harvest time ends. But the crisis made the contraction (in 2008's fourth quarter) deeper," he said.

Indonesia’s exports have been hard hit by the global economic downturn, which started to hit in the last three to four months of 2008.

Economists also predicted that investment — another driver of economic growth — would start to fall this year amid a worldwide liquidity shortage.

However, the agency endorsed government predictions that economic growth this year would not fall below 4.5 percent. Despite the fourth quarter contraction, the economy expanded by 6.1 percent last year, while many countries suffered from recession.

"Indonesia was far better off than other countries that had stronger trade relations with the US, Japan, and Western European countries. Even Malaysia and Singapore had a deeper economic fall," said Rusman.

With exports and foreign investment expected to be hit hard by the worsening global conditions, Indonesia’s economic growth will rely on how effectively the government implemented budget allocations.

"The economy will depend on effective government spending and private consumption," Rusman said.

Of last years' 6.1 percent economic growth, government spending contributed 0.8 percent to the growth in gross domestic product, and private consumption 3.1 percent.

However, Danareksa Research Institute chief researcher Purbaya Yudhi Sadewa warned that if the government repeated last year's spending patterns, then the economy "would be in trouble".


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