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Indonesia Expects 2013 Growth of Up to 7.2%

The Indonesian government expects the country’s economic growth to rise next year due to investment. The growth would be the fastest since 1996, before the Asian financial crisis, however pundits have said the target growth is too optimistic given the ongoing global economic crisis.

The government and the House of Representatives agreed on Monday to target economic growth of between 6.8 percent and 7.2 percent next year, according to the proposed 2013 state budget.

In a meeting on Monday with the House’s Commission XI, which oversees finance and banking, the government set the three-month treasury yield at between 4.5 and 5.5 percent, the rupiah exchange rate at Rp 8,700 to Rp 9,300 per US dollar, Indonesian crude oil prices between $110 to $120 a barrel, and inflation at 4.4 to 5.4 percent.

This year economic growth is projected to be 6.5 percent and the rupiah is slated at 9,200 against the dollar.

On Tuesday, Bambang Brodjonegoro, the head of Finance Ministry’s Fiscal Management Office, said that investment would grow 12.1 percent next year. Some is expected to come from foreign investors, who will be attracted by projects from the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI).

“Our foreign direct investment has high potential because foreigners are attracted to a huge market,” Bambang said, referring to the country’s 240 million population, making it the fourth-most populous country in the world.

The government can capitalize on such investments, Bambang said, by improving its infrastructure spending.

That suggests a shift to investment. When Indonesia’s economy grew 6.5 percent last year, private consumption accounted for 56 percent of economic activities while investment accounted for about 15 percent.

The actual foreign direct investment hit Rp 51.5 trillion ($5.6 billion) in this year’s first quarter, up 30 percent from the same period in 2011, according to data from the Investment Coordinating Board (BKPM).

The agency said that the increase in foreign direct investment was led by the mining sector, with $1.1 billion of investment, followed by transport, storage and communication with $800 million, and food crops and plantations with $500 million.

Indonesia saw a 21 percent increase in total domestic and foreign investment to Rp 251.3 trillion in 2011 compared to the previous year.

Bank Indonesia, the central bank, was less optimistic on the investment growth projected for next year, penciling in 10.5 percent growth. Darmin Nasution, the central bank governor, said that global uncertainty was holding back the country’s growth.

Ahmad Erani Yustika, the director of the Institute for Development for Economics and Finance (Indef), an independent think-tank, said that the global economic slowdown, led by contraction in the debt-ridden euro zone, would be the main problem for Indonesia’s growth.

“Only if that global crisis was over, we could grow by 6.7 percent,” he said.

Fauzi Ichsan, a senior economist at the Standard Chartered Bank, agreed.

“We have to be realistic, this condition can lead to pressure to our economy,” he said.

Additional reporting from Investor Daily
Infrastructure will determine if the government’s aggressive projection for growth in 2013 comes to fruition.