ASEAN KEY DESTINATIONS
WB asks Indonesia to be wary of China slowdown
A 1 per cent economic slowdown in China may decelerate Indonesia's economic expansion by up to a half a per cent, the Washington-based institution noted in its October report released yesterday, titled "Indonesia Economic Quarterly: Maintaining Resilience".
The report forecasts that Indonesia's economy will expand to 6.1 per cent this year and 6.3 per cent next year, but warned the country over "downside external risks", especially those stemming from China's economy, which could push down Indonesia's growth to just below 5 per cent in 2013.
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argued that the direct impact for Indonesia's economy would be felt
through the trade channels, as China currently absorbs about 11 per cent
of Indonesia's total exports, mostly commodities.
The indirect impact from China's slowdown, meanwhile, would also be felt through investment.
China slows down, it is going to be felt in Japan and Korea. They
happen to be important sources of FDI [Foreign Direct Investment] to
Indonesia," he explained.
is Indonesia's biggest trading partner, with total trade between the
two countries amounting to US$60.5 billion last year, according to data
from the Chinese Embassy in Indonesia.
the world's second-largest economy, is currently feeling the pinch of
weakening global demand, recording its slowest economic growth in three
years of 7.6 per cent in the second quarter of this year.
World Bank this month chopped its economic growth forecast for China to
7.7 per cent from its earlier prediction of 8.2 per cent as the world's
second-largest economy heads for a "soft landing" due to its heavy
reliance on exports.
must be prepared for policies in anticipation of China's slowdown as
there were "no signs of the business cycle turning" in China at the
moment, according to Diop.
World Bank also suggested that Southeast Asia's largest economy improve
the quality of both the allocation and the efficiency of spending,
especially considering the tough external challenges that the country
would face in the future.
World Bank advised Indonesia to maintain policy consistency and
clarity, particularly in the area of business and investment regulation,
and recommended policymakers in the country to avoid any "policy
missteps", meaning policies that were implemented to address a near-term
issue but actually carried longer-term risks and costs.
the Indonesian government policies highlighted by the World Bank is
excessive spending on fuel subsidies, which it argued limited
Indonesia's flexibility to respond to any external risks that could
cause downturns in growth.
"Fuel subsidies aren't good, they use up a lot of fiscal resources," World Bank sector manager for poverty reduction Jim Brumby said yesterday.
"And they aren't pro-poor, because the benefits go to the people who use cars."
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