RI well positioned to weather external shock: World Bank

Indonesia’s economy continues to perform strongly and remains relatively well-positioned to weather external shocks, the World Bank said in its latest economic report.

In its latest Economic Quarterly Report released on Wednesday, the World Bank warned however that despite its strong economic fundamentals, Indonesia needed to enhance its resilience to shocks in light of the current weak external environment and uncertain outlook.

“Because of the natural resilience of its economy, Indonesia is well-positioned to navigate this turbulence,” Shubham Chaudhuri, lead economist for the World Bank in Indonesia, said.

But, he said, there is a risk of more adverse scenarios sparked by a freezing up of international financial markets that could lead to a severe, prolonged downturn in major emerging economies, and Indonesia needs to be adequately prepared for such scenarios.

Indonesia’s real economy continued to book solid growth in the third quarter, with real GDP increasing by 6.5 percent year-on-year for the third consecutive quarter.

The private consumption growth remained strong as did real export growth, although it was slightly down relative to the second quarter.

Foreign Direct Investment (FDI) inflows declined in the last quarter but remained relatively strong, and well above the average FDI inflows seen over the past two years.

However, due to weaker global prospects and continued global uncertainty, the World Bank’s baseline 2012 growth forecast for Indonesia has been lowered to 6.2 percent, marginally down from a projection of 6.3 percent in October.

The growth forecast for 2011 remains unchanged at 6.4 percent.

In production, manufacturing continued to record solid results. Recent GDP growth has been accompanied by robust job creation, with non-agricultural employment up 5.4 percent in the year as of August 2011.

In the quarterly report, the World Bank also suggested that Indonesia needed to prepare itself to take necessary steps, such as to become more flexible in its fiscal policy response and to create a stable government bond framework, to protect itself from any possible negative impacts in the near future.

The report also stressed that amid the global crisis, Indonesia also had the opportunity to move forward with investments and reforms that would improve domestic productivity. This would lead to growth and attract more stable and longer-term capital flows.

World Bank country director for Indonesia Stefan G. Koeberle said that the growth of Indonesia’s manufacturing sector was also encouraging.

“There are many reasons to be optimistic about Indonesia’s manufacturing sector, like the rapidly growing domestic market and low labor cost compared to other countries in the region,” he said. “This has led to a significant increase in investment – both domestic and foreign – in Indonesia,” he added.

Bank Indonesia spokesman Difi Johansyah admitted that the uncertainty in the global financial markets had led to a net outflow of foreign funds from Indonesia’s equity and debt markets within the last two months.

But he said that the outflow of the foreign funds did not pose a significant threat to the country’s economy.

“Most of the investors who withdrew their capital from the Indonesian market were the ones who
had invested for a long time in Indonesia and decided to pull out after they gained their profits. On the other hand, we also have many foreign investors entering our market,” Difi told The Jakarta Post
on Wednesday.

“We have predicted that there would be capital outflows. But we also see that those outflows are followed with inflows as well. The stability of the Jakarta Composite Index shows that we are still doing fine,” he added.

Financial analysts are also of the positive view that the uncertainty in the global economy will not pose a real problem for the Indonesian economy.