Tito Summa Siahaan
The World Bank has cut its forecast on Indonesia’s 2013 economic growth, citing a possible global slowdown coupled with lingering worries in the euro zone that could curb demand for commodities from Southeast Asia’s largest economy.
A major freezing of international financial markets could contribute to a drop in trading partner growth, a fall in global commodity prices and reduced domestic investor confidence, similar to what happened in 2009, the World Bank said.
If that happened, Indonesian growth could slow dramatically, it said.
“For 2013, the baseline projection is for growth of 6.4 percent. However, a severe global downturn could push growth down to around 4 percent,” the World Bank stated in a report published on Thursday.
Sri Mulyani Indrawati, the former Indonesian finance minister who was appointed as World Bank managing director in 2010, said in Jakarta on Thursday that downside risk in the global economy was expected to increase during the second half of this year and could have long-lasting repercussions.
“The impact of the global slowdown will be strongly felt next year,” Sri Mulyani said.
Europe’s debt crisis coupled with slower-than-expected economic recovery in the United States and a slowdown in China’s growth further dampened Indonesia’s growth prospects.
“A solution to the euro zone crisis will require quite some time to be reached and it may deteriorate confidence in the global economy, while data from the US showed that economic recovery has yet to gain pace,” the former minister said on Thursday.
Sri Mulyani was speaking after meeting with top Indonesian ministers, including Coordinating Minister for Economic Affairs Hatta Rajasa and Finance Minister Agus Martowardojo.
She advised the Indonesian government to improve the quality of its spending in order to cushion the impact of a slowdown.
“Government spending should be channelled to productive things like infrastructure that will not only improve the quality of growth but also ensure that growth can be sustained,” she said.
That did not mean Indonesia should neglect its neediest citizens, she added.
“The government needs to come up with policy that can directly benefit the poor,” Sri Mulyani said, adding that job creation must also play an integral part in Indonesia’s future economic performance.
“To safeguard Indonesia’s economic resilience and performance for the long-term, the key words are quality and equality,” she said.
Sri Mulyani was in Bali on Tuesday for the High Level United Nations Conference on South-South Cooperation, where she highlighted the potential role developing countries such as Indonesia could play in offsetting a global economic downturn.
Sri Mulyani’s name has been mentioned as a possible candidate in the upcoming presidential elections in 2014, but she has said she will not run.