Growth on target at 6.5%; Java remains economic driver

Despite the fact that Indonesia’s gross domestic product (GDP) grew by 6.5 percent in 2011, the country is facing a huge challenge in the disparity of contributions to that economic growth from its regions.

The Central Statistics Agency (BPS) revealed on Monday that Java remains the main growth machine for GDP, contributing 57.5 percent of growth last year.

National Development Planning Minister Armida Alisjahbana said that growth disparities could only be solved by successfully implementing the Master Plan for the Acceleration and Expansion of Indonesian Economic Growth (MP3EI) infrastructure program.

“It takes time to implement the MP3EI. We must have a strategy to boost investment to consistently reach above 6.5 percent growth.”

She said the growth focus remains in Java as two-thirds of the country’s population lives on the island.

The BPS also revealed that the main contributory factors to Indonesia’s growth were still dominated by household consumption and investment, with 54.6 percent and 32 percent, respectively.

Although household consumption and investment’s contribution to GDP figures were lower than in 2010 (56.6 percent and 32.1 percent, respectively, at that time) the country managed to improve its economic growth from exports and imports.

Exports’ contribution increased to 26.3 percent in 2011 from 24.6 percent in 2010, while imports contributed 24.9 percent to GDP in 2011, up from 22.9 recorded the previous year.

Despite imports growing faster than exports, Indonesia’s trade balance still booked a surplus of US$26.3 billion, a 19 percent increase from 2010, according to Trade Ministry data that showed the country’s exports stood at $203.2 billion, an all-time high, in 2011.

Barclays Capital analyst Prakriti Sofat said the latest Indonesian GDP-growth report showed that it had managed to maintain a productive economic climate during the crisis.

“Household spending grew by nearly 5 percent year-on-year, the fastest pace since the third quarter of 2010. This was supported by upbeat consumer confidence and contained inflation,” Prakriti said.

“Investment accelerated to 11.5 percent year-on-year, the first double-digit figure since September 2008, due to domestic and foreign direct investment into the country.”

Finance Minister Agus Martowardojo said last year’s performance showed how important it was for the country to focus on maintaining a stable investment climate. “In 2009, also a crisis year, the economy grew by 4.6 percent. The difference between the growth in 2011 as opposed to 2009 is that investments have become increasingly significant.”

Indonesia has set a growth target of 6.7 percent in 2012 amid pessimism over the global economic climate.

The National Economic Committee’s (KEN) think tank has warned that one of the major challenges in increasing the country’s economic growth is the possibility of a slowdown in exports.

KEN deputy chairman Muhammad Chatib Basri said Indonesia could have recorded 8 percent growth last year if only the government had managed to develop adequate infrastructure, adding that it made it expensive for businesses to carry out their daily operational activities.

“If they have to wait a long time before distributing their goods, the cost of doing business becomes very expensive,” he said.