Business / Economy

Indonesia favored once more

By Alfred Romann in Hong Kong (China Daily) Updated: 2014-03-03 07:44

Some analysts suggest growth will continue to slow through 2014. Both Credit Suisse and Barclays expect softer numbers for this year, with some suggesting growth may be 5 percent.

On the other hand, Bank Indonesia expects growth this year to range between 5.8 and 6.2 percent and at least one international bank, Standard Chartered, agrees.

But stable growth of 5 or 6 percent is nothing to sneeze at, particularly if it can be tied to a more stable currency, something that Indonesia has had a difficult time delivering.

Indonesia favored once more

Indonesia favored once more

The rupiah was the worst-performing Asian currency in 2013, plunging 21 percent against a strengthening dollar.

On the other hand, household consumption rose 5.25 percent in the last quarter of 2013 from a year earlier and investment climbed 4.37 percent. Domestic consumption is a big part of the economy, accounting for 55.8 percent of GDP, a full percentage point higher than in 2012.

DBS Group, a Singapore-based bank, expects private consumption to remain strong through the near and medium term and to continue powering economic growth.

A key area of focus is infrastructure, which Indonesia badly needs.

Roads are far fewer than needed and often in disrepair. The country's biggest cities are famously congested while traffic jams in Jakarta, the capital, can last for hours. The power supply in the countryside is not always reliable and water sanitation needs an upgrade.

To address these challenges, Indonesia needs to attract more investment. As part of an effort to do that, it has created the Indonesia Infrastructure Guarantee Fund.

The aim of the fund is to provide guarantees for investors that may shy away from the country fearing political risk or policy changes, explained Sinthya Roesly, the fund's president director, during a roundtable organized by China Daily as part of the Asian Financial Forum in Hong Kong in January.

"What we actually provide is the guarantee through various contracts with the private sector and also the government," she said. "This contracting scheme is expected to provide confidence."

Another driver of growth in Indonesia is its increasing links to ASEAN and the imminent launch of the ASEAN Economic Community, likely to be established in 2015. As a group, ASEAN has a population of 600 million people and some dynamic economies, including Malaysia and Thailand.

Among respondents to Ernst & Young's annual survey, 9 percent identified Indonesia as their country of focus while more than a third of investors active in Southeast Asia said Indonesia was their focus.

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