Indonesia’s Economy Expands at Fastest Pace in a Year

By Aloysius Unditu and Novrida Manurung

Feb. 10 (Bloomberg) -- Indonesia’s economy grew at the fastest pace in a year last quarter as lower interest rates and government stimulus measures spurred consumer spending.

Southeast Asia’s largest economy expanded 5.4 percent in the three months to Dec. 31 from a year earlier after gaining 4.2 percent in the third quarter, the statistics office said in Jakarta today. The median forecast in a Bloomberg News survey of 18 economists was for a 5 percent increase.

Asian economies from China to Vietnam are picking up speed after policy makers boosted spending and slashed borrowing costs to counter the global recession. Credit Suisse Group AG said Indonesia and other countries in the region are less vulnerable to sovereign risks than some European nations as Asian debt levels are lower and more sustainable.

“Indonesia’s financing situation compares favorably to many of its regional and rating peers, not to mention the weak links in the European Union,” Cem Karacadag, an economist at Credit Suisse in Singapore, said before the report. “The government’s financing situation is manageable and Indonesia’s creditworthiness is gradually but steadily improving.”

The Indonesian government’s financing requirements will be about 4 percent of gross domestic product this year, less than half of those of India and the Philippines, and less than a quarter of those of Greece, Portugal, Spain, and Turkey, according to Credit Suisse estimates.

Greek Tragedy

European officials, who are meeting at a summit in Brussels tomorrow, are considering assistance for Greece after the country’s deficit threatened financial-market stability. The euro’s slide to a nine-month low and surging bond yields prompted leaders to drop their resistance to rescuing Greece and protect the rest of the euro region from market turmoil.

Asia is “relatively risk free” from contagion from Europe as the region’s governments mainly use domestic markets to fund their deficits and debt levels are within sustainable limits, CIMB Investment Bank Bhd. said in a Feb. 8 report.

Indonesia’s economy expanded 4.5 percent in 2009, according to today’s report. GDP shrank 2.4 percent in the fourth quarter from the previous three months.

Indonesia has fared better than its neighbors during the global slump as it relies less on exports and consumer confidence has been buoyed by the most stable political climate since the ouster of former dictator Suharto in 1998.

“For Indonesia, the risks have nothing to do with politics,” Nikhil Srinivasan, who helps manage about $30 billion as Singapore-based chief investment officer for Asia and the Middle East at Allianz Investment Management, said in an interview in Jakarta before the report. “The only worry is making sure they push infrastructure so that growth can be more than 5 percent.”

Consumer Confidence

The Jakarta benchmark stock index increased 87 percent last year and the rupiah gained 16 percent, the best performance from an Asian currency outside Japan, as foreign funds sought to take advantage of Indonesia’s strengthening economy.

Growth in Indonesia’s $514 billion economy has been supported by rising consumer confidence, which according to a central bank index rose in January to near the five-year high recorded in July 2009 when President Susilo Bambang Yudhoyono was elected to a second term.

Yudhoyono, 60, has pledged to double spending on roads, seaports and airports to $140 billion over the next five years, part of his push to deliver economic growth of at least 6.6 percent by the end of 2014.

Car Sales

Consumer spending is also benefitting from low inflation, said economists including Alexander Eric Sugandi from Standard Chartered Plc. in Jakarta. Inflation slowed to a decade low of 2.78 percent last year.

Indonesian car sales rose to 148,598 units in the fourth quarter from 140,585 a year earlier, according to data from Indonesia’s Car Association. Sales may increase to between 550,000 and 600,000 this year from 486,061 in 2009, according to Joko Trisanyoto, PT Toyota Astra Motor’s marketing director.

PT Krakatau Steel, Indonesia’s largest producer of the metal, expects sales to increase by 20 percent to 19 trillion rupiah ($2 billion) this year due to possible demand from government infrastructure projects, Irvan K. Hakim, marketing director of the company, said on Feb. 8.

Indonesia’s central bank cut its benchmark interest rate by 3 percentage points between December 2008 and August last year to shield the nation from the global recession. The policy rate has since been maintained at 6.5 percent.

The Philippine economy expanded 1.8 percent in the fourth quarter of 2009 from a year earlier and China’s GDP increased 10.7 percent.

Indonesia’s “economic upswing remains on track, with domestic demand leading the way,” said Ashira Perera, an economist at Capital Economics Ltd. in London.

To contact the reporter on this story: Aloysius Unditu in Jakarta at aunditu@blomberg.net