Dion Bisara & Bhimanto Suwastoyo
Amid concerns that Indonesia’s economy could be crippled by the global slowdown, the country is aiming to achieve growth with support from foreign direct investment and a diversification in its export destinations.
Trade Minister Gita Wirjawan told BeritaSatu TV’s “Impact” program on Thursday that Indonesia would experience strong investment, higher domestic consumption and government spending to ensure it grows by at least 6 percent annually in the next few years. Growth, however, still depended on the evolution of Europe’s debt crisis.
“Our capacity for continuing to grow over 6 percent will not be sustainable if there is no decisiveness in Europe,” Gita told program host Peter Gontha. BeritaSatu TV is an affiliate of the Jakarta Globe.
Gita’s comment echoed that of the International Monetary Fund, which on Monday cut its 2013 forecast for global economic growth to 3.9 percent from 4.1 percent in April. It also reduced projections for advanced and emerging economies. The IMF warned that the outlook could deteriorate further if policymakers in the euro zone do not act rigorously and hastily to resolve their region’s debt crisis.
“It is serious,” Gita said, adding that problems in Europe and a slow recovery in the US economy are beginning to inhibit Asia’s growth.
The euro, which is used by 17 European nations, recently slipped to a two-year low against the US dollar, and nations including Italy and Spain are mired in recession. China, Indonesia’s biggest trade partner, reported this week that its economic growth slowed to 7.6 percent in the second quarter from 8.1 percent in the first quarter, as exports to the West decreased.
This condition, notable across Asia-Pacific nations, might hurt Indonesia, which ships raw commodities to neighboring countries, Gita said.
“It is very difficult to anticipate that we can boost exports, to anywhere. Shipment of our products to other countries will be really influenced by their capacity to send their goods to Europe and the United States.”
Still, such conditions may present an opportunity to ship goods to new markets such as countries in Latin America, Africa, the Middle East, and Central Asia, he said.
Indonesia exported a total of $18.1 billion of goods, excluding oil and gas, to so-called non-traditional markets in the first five months of the year, down 2.9 percent from $18.7 billion in the same period last year. They accounted for 28 percent of the country’s non-oil and gas exports, which include rubber, palm oil, coal and copper, according to Central Statistics Agency (BPS).
By comparison, non-oil and gas shipments to Indonesia’s biggest markets — namely Southeast Asian nations, China, the United States and Europe — amounted to $46.1 billion in the January-May period.
Indonesia is also banning the export of ores in a bid for mining companies to process metals such as nickel and copper as value-added products.
“We should expand the total cake,” Gita said. “We should be confident that in the future we can send products that have value added.”
Investment to Indonesia, which has the largest economy in Southeast Asia, might also strengthen as businesses seek to engage with the country’s population of 240 million people, of which 71 percent are below the age of 40. Political and social stability as well as prudent monetary and fiscal policies would also attractive foreign investment, analysts say.
Gita said: “For investors wanting to build a factory, the paradigm is 20 years. Therefore, they will first consider whether in another 10 years, Indonesia would still have 60 percent of its population under the age of 39 years, because this is the part of the population that will consume their products. If the investors are smart, it would be difficult not to see Indonesia as sexy.”
Foreign direct investment to Indonesia rose 30 percent in the first quarter to Rp 51.5 trillion ($5.6 billion) from a year earlier, according to the Investment Coordinating Board (BKPM). The FDI increase was led by the mining sector, with $1.1 billion of investment, followed by transportation, storage and communication at $800 million and food crops and plantations at $500 million.
The increase was incredible, Gita said, considering that global FDI had shrunk to $1.2 trillion from $2 trillion in the past 12 months. “Indonesia obtains money from countries all over the world, from South Korea, Europe, India and such. Europe has problems, but their problems are fiscal and not corporate problems,” Gita said.