Indonesian Economy Probably Expanded at Slowest Pace in 2 Years

By Arijit Ghosh and Michael Munoz

Nov. 17 (Bloomberg) -- Indonesia's economy probably grew at the slowest pace in two years in the third quarter as declining commodity prices reduced the value of exports.

Southeast Asia's largest economy expanded 5.9 percent from a year earlier, after growing 6.4 percent in the preceding three months, according to the median estimate of 22 economists in a Bloomberg News survey. The Central Statistics Bureau will release the data in Jakarta today.

Exporters in Indonesia, the world's biggest producer of palm oil and the second-largest maker of rubber, are reeling from a slump in commodity prices as a slowdown in the U.S. and Europe reduces demand. Frozen credit markets are also making it difficult for companies to obtain the letters of credit needed to secure payment for their shipments.

``A few months ago I had five out of six containers already on their way to the port returned because the client suddenly called and said he couldn't secure the payment,'' said Umar Chotob, owner of CV Java Marindra Jaya, which exports wooden furniture. ``The impact of the financial turmoil is remarkable. It's overwhelming.''

Indonesia's export growth slowed to 14 percent in the three months to Sept. 30, according to the economists' survey. That's the smallest increase in three quarters. Indonesia last month cut next year's target for overseas sales to below 11.9 percent.

`Much Lower'

``All export prices are down and you can't compensate that with extra volume because demand is not there,'' said Tony D. Costa, the president of PT Bank Rabobank International Indonesia, a unit of the world's biggest agricultural lender. Consumer spending is slowing and ``I can bet that motorcycle sales will be much lower. That means the economy will slow.''

Rising prices of coal, palm oil, coffee and rubber earlier this year increased the income of farmers and miners. That helped boost sales of motorcycles to a record 612,032 in August, after Indonesians purchased an unprecedented 60,830 cars in July.

Since then, commodity prices have tumbled.

``Falling commodity prices, which dampen rural incomes, tightening liquidity conditions from ballooning loan-deposit ratios and higher interest rates, and still high inflation rates could hurt private consumption spending in the near term,'' said Sim Moh Siong, an economist at Citigroup Inc. in Singapore.

Indonesia's economic growth may slow to as low as 5 percent next year as the world tilts toward a recession, Finance Minister Sri Mulyani Indrawati said on Nov. 9.

``It will be very, very challenging for us to maintain growth under the current circumstances,'' Sri Mulyani said. ``Just like other developing countries, we have to be prepared for a longer period of weakening in the economy.''

The International Monetary Fund this month predicted the first simultaneous recession in the U.S., Japan and euro region in the post-World War II era next year.

The following is a table of economists' forecasts.

--------------------------------------------------------------
                           3Q      3Q         Private Exports
Firm                       YoY     QoQ    2008    Cons
--------------------------------------------------------------
Median                   5.90%   3.38%   6.10%   5.10%  14.00%
Average                  5.80%   3.20%   6.05%   5.31%  14.45%
High                     6.24%   3.67%   6.28%   6.42%  18.50%
Low                      4.40%   1.90%   5.60%   4.80%   8.30%
Number of Estimates         22      15      16       9       9
--------------------------------------------------------------
Action Economics         6.00%   3.50%   6.00%   5.00%  18.50%
ATR-Kim Eng Capital      5.90%      --   6.00%      --      --
Bahana Securities        5.80%   3.29%   6.00%      --      --
Bank Central Asia        6.20%   3.60%   6.20%   5.80%   8.30%
Bank Danamon             6.00%   3.60%   6.20%   5.20%  18.50%
Bank Intl Indonesia      6.13%   3.61%   6.20%      --      --
CFC Seymour Limited      4.40%   1.90%   5.60%   4.90%  17.30%
CIMB Niaga Bank          6.12%   3.60%   6.15%   6.42%  13.18%
Citi                     5.80%      --      --      --      --
Credit Suisse            5.40%   2.90%   5.70%   4.80%  12.00%
Danareksa Securities     6.19%   3.67%   6.28%      --      --
Forecast Ltd.            6.12%      --      --      --      --
Ideaglobal               5.80%      --      --      --      --
ING Groep NV             5.30%   2.80%      --      --      --
Mandiri Securities       6.01%   3.50%   6.15%   5.10%  13.10%
Moody's Economy.com      5.10%      --   5.88%      --      --
OCBC Bank                6.00%      --   6.18%      --      --
PT. Mega Capital         5.89%   3.38%      --      --      --
Reuters IFR              5.80%   3.30%   6.10%      --      --
Samuel Sekuritas Indo    6.24%   2.10%   6.09%   5.50%  15.20%
Standard Chartered       5.80%   3.30%   6.00%   5.10%  14.00%
UBS                      5.50%      --      --      --      --
--------------------------------------------------------------

To contact the reporter on this story: Arijit Ghosh in Jakarta at aghosh@bloomberg.net