Economy picks up on new investment

JAKARTA. The Indonesian economy maintained its resilience in the second quarter of this year as stronger domestic consumption and new investment helped offset the impact of weaker global demand, the Central Statistics Agency (BPS) reports.

BPS data shows that the economy expanded by 6.4 percent in the quarter ending June 30 from a year earlier, significantly faster than the consensus of most analysts but still below government expectations.

“Cumulatively, Indonesia’s economic growth in the first half of 2012 grew by 6.3 percent compared to same period last year,” BPS head Suryamin told reporters during a press conference at his office on Monday.

With the overall growth in the first half of the year, the government would have to ensure a 6.7 percent economic expansion in the last six months of the year in order to achieve its 6.5 percent target.

Bank Danamon chief economist Anton Gunawan said that stronger domestic demand and investment managed to offset poor performance of exports in the second quarter, beating forecasts.

“The investment realization data from the BKPM [Investment Coordinating Board] was very encouraging. Foreign investment recorded high growth at 30 percent year-on-year, while domestic investment rose relatively more modestly at 10 percent,” he said.

Anton added that strong foreign investment also mirrored high imports of capital goods, which grew by 30 percent in the second quarter.

“This shows that fundamentally, Indonesia remains attractive despite the global slowdown.”

Indonesia booked a trade deficit for a third consecutive month in June on higher domestic demand for capital goods and raw materials. The deficit, measured at US$1.33 billion by the BPS, was the widest in five years, an indication that the economy was expanding beyond its production capacity analysts said.

President Susilo Bambang Yudhoyono responded to the positive growth numbers by congratulating “all stakeholders” for excellent performance amid the global economic turmoil.

According to Bloomberg data, Indonesia’s growth is the fastest among G20 nations after China, even as the faltering global recovery hurt the rupiah and damped expansion in neighbors from Taiwan to Singapore.

Based on the current price rates, Indonesia’s GDP in the second quarter is valued at Rp 2,050.1 trillion. The main contributors for growth were the industrial, agricultural and trade sectors at 23.5 percent, 14.8 percent and 13.8 percent, respectively.

Standard Chartered economist Eric Sugandi said that it was still possible for Indonesia to achieve its economic growth target of 6.5 percent by the end of the year, but noted a lot of hard work would be necessary.

Eric said that the significance of the investment factor would become more and more crucial in coming months, especially under the ongoing global crisis that had hit Indonesia’s exports.

“We should appreciate the government for being able to provide a more business-friendly environment to lure investors,” Eric said.

Eric added that a growing middle class would also drive additional investment in the country as it would create more market space and would lure more investors to invest in the real sector.

Eric, however, said that the government was still lacking in its support for the acceleration of infrastructure development.

“We already have the land acquisition law in place but we are still waiting for its implementation legal basis to be issued,” Eric said, referring to the eagerly anticipated presidential regulation on land acquisition.

BPS statistics analysis deputy Suhariyanto said sufficient infrastructure would also help to ensure a more even distribution of investment in the country.

“The government needs to prioritize improving infrastructure because this will enhance connectivity, which is crucial to ensure future investments will no longer be centralized in Java only. We need to make regions outside of Java more interesting for investors,” he said.

The BPS data shows that Java was still the largest contributor for the second quarter GDP with 57.5 percent followed by Sumatra with 23.6 percent. The eastern part of Indonesia contributed less than 10 percent to the total GDP. (Hans David Tampubolon/ The Jakarta Post)