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March 3, 2009

Indonesia: Export plunge may force govt to raise spending
Indonesian's January exports fell a worse-than-expected 36 percent, the biggest annual decline in more than 22 years, as global demand for key commodities such as palm oil and rubber slumped, reported Reuters.

The plunge in exports, coupled with weaker growth, is likely to put more pressure on the government to accelerate spending and on the central bank to cut interest rates again despite a weaker rupiah, as Southeast Asia's biggest economy holds elections this year.

Indonesia's exports are equivalent to roughly one-third of its gross domestic product, making it less dependent on exports than some other Asian economies. But imports are slumping, too, indicating domestic consumption is cooling rapidly as well.

"The fall in exports is in line with regional plunges. Exports in the regional economies, in the likes of Singapore, Taiwan and Malaysia, have collapsed of late," said Enrico Tanuwidjaja, an economist at Singapore's OCBC Bank.

"Considering that Indonesia also serves such regional markets, the demand for raw and intermediate Indonesian goods is likely to be significantly reduced," he added.

Parliament passed a 73.3 trillion rupiah ($6.11 billion) fiscal stimulus package last month, including infrastructure spending, aimed at creating jobs and spurring growth that is set to slow to 4-5 percent in 2009, from 6.1 percent in 2008.

The package has pushed the budget deficit to 2.5 percent of GDP this year, and will be partly financed by debt. Last week, Indonesia sold $3 billion of global bonds, and has $5-6 billion of standby loans.

But some economists, including Gundy Cahyadi of IDEAGlobal in Singapore, warned that the government may need to do more.

"They might look at passing a second stimulus package, toward the middle of the year," he said.

"All their bond sales have been getting a pretty good response. I think financing-wise, (it) shouldn't be too much of a problem for them."

The drop in exports to $7.15 billion in January, from $11.19 billion a year ago, exceeded the 30-percent decline forecast by analysts, and followed a 20.6 percent drop in December.

The latest data and further signs of moderating inflation should prompt the central bank, Bank Indonesia (BI), to cut its benchmark interest rate BIPG by 25 basis points to 8.0 percent on Wednesday, analysts said, bringing total easing to 150 basis points since December 2008.

Annual inflation in February was in line with expectations, falling to 8.60 percent, the lowest since March 2008, from 9.17 percent in January.

The rupiah and stocks were largely unchanged after the data release compared to before the announcement.

The statistics bureau also said imports, including imports into bonded zones, fell 34 percent in January from a year ago, as the economy slowed, against a forecast for a 32 percent fall.

A comparative figure for December was not available as the statistics bureau only started calculating imports into bonded zones in January 2008.
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