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NEWS UPDATES 17 June 2009

Morgan Stanley sees Indonesia GDP climb to 7% by 2011 

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Indonesia's economic growth may reach seven percent by 2011, signaling the biggest economy in Southeast Asia is inching towards economic parity with the BRICs (Brazil, Russia, India and China), the Jakarta Post quoted financial services firm Morgan Stanley as saying.

Stable political conditions despite the 2009 elections and strong domestic demand despite the global economic downturn will help "push the economy towards its potential 6 to 7 percent growth from 2011 onwards", Morgan Stanley said in a statement Monday.

Indonesia can be compared to India due to its strong domestic market and the structural decline in the cost of capital, amid globalization and capital inflows, it said.

"The potential (for) 7 percent (growth) for Indonesia is always there and is possible,"

Finance Minister Sri Mulyani Indrawati said. "We are not too ambitious. In 2010, the economy may still have its ups and downs; and in 2011, when the consolidation is done, it may start recovery."

She said by 2011, the world's economy might have resolved, in particular the relations between the US and China, which might result in major shifts in the patterns of global trade and investment. "Exchange rate and inflation are all in the context of finding a new equilibrium."

Indonesia's economy in the first quarter of 2009 grew by 4.4 percent from a year earlier, according to the Central Statistics Agency (BPS). The government expects the economy to expand between 4 percent and 4.5 percent this year, and between 5 percent and 6 percent in 2010.

The economic indicators for the persistently robust Indonesian economy have prompted the International Monetary Fund (IMF) to upgrade its growth forecast for Indonesia from 2.5 percent to between 3 and 4 percent this year, reflecting previous IMF pessimism.

Incumbent President Susilo Bambang Yudhoyono, who is running for re-election, aims to reach 7 percent growth in the coming years, if he is successful in winning the presidency for a second time.

Yudhoyono's opponent, incumbent Vice President Jusuf Kalla aims to secure 8 percent growth, while former president Megawati Soekarnoputri promises double-digit growth, which Indonesia did not achieve before during the presidency of the former president Soeharto.

Lutfi, the chairman of the Investment Coordinating Board (BKPM), said Morgan Stanley's forecast was not new, as in April the Organization for Economic Cooperation and Development (OECD) had already said that Indonesia was among the highest-growth emerging economies in the world. along with the BRICs and South Africa.

"I think the report is way too late," he said. "A 7 percent growth can most likely be achieved by 2011."

As one of the largest economies in the world with a population of about 230 million, Indonesia remains attractive for investment due to its strong customer base, he added.

Rachmat Gobel, a vice president of the Indonesian Chamber of Commerce and Industry (Kadin), said Indonesia should use the momentum gained from having positive growth, despite the global economic downturn, to attract investors.

"What's important is the government chooses the right investors that can give added value," he said.


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