Sunday, 30 November 2008

European Joint Breakfast Meeting with Chatib Basri:

At a joint breakfast gathering of the European Chambers of Commerce this morning, economic adviser to the government Chatib Basri forecast Indonesian economic growth for next year to fall into the lower part of between 4.5 and 5.5% in 2009. Indonesia has a lower export ratio than most other countries in the regions (around 30% of GDP), but Indonesia will also feel the impact of lower export growth of the industrialized countries in Indonesia that buy Indonesia's raw materials. Moreover, Indonesia as an emerging market, will suffer from capital withdrawals that are caused by the credit crunch in the United States and Europe. Government bonds in the United States are still regarded as a safer investment, and the demand for dollars has been pushing up the dollar against Asian and other currencies. Because of the withdrawals of portfolio investment and lower rates of foreign direct investments, Indonesia's overall balance of payments will deteriorate and put pressure on the rupiah. For next year, a US$-Rupiah rate of between 10.000 and 12.000 is expected. In recent years, growth and credit expansion have been particularly brisk in the outer regions (Sumatra, Kalimantan and Sulawesi), but the lower commodity prices will reduce the economic growth in these areas. Chatib expects commodity prices not to fall any further, but to recover gradually over the next year. The Indonesian government will initially try to reduce the budget deficit from the current 1.9 % of GDP to 1% of GDP, but will also start spending on new infrastructure projects in the course of next year. With this spending, partly in for of cash-for-work local infrastructure, the government will also try to keep consumption going. Consumption at 65% of the economy is an important driver for growth.

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