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 24 Apr 2009

Indonesia recovery hinges on US, EU reforms

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Indonesia’s economic recovery will depend heavily on how reforms in the US and Europe manage to lift them out of the worst downturn in decades, the Jakarta Post quoted a minister as saying.

“We know the first and second quarters of this year will be the most affected by the impacts of the global [economic] crisis,” acting Coordinating Minister for the Economy Sri Mulyani Indrawati said Wednesday.

“Unless the financial and banking systems in Europe and the United States are fixed, there’s a chance the economy will continue to weaken until the first quarter of 2010.”

However, Mulyani said if positive sentiments continued in the third quarter of this year, “there is a chance for recovery to start in the second semester [of this year]”.

Mismanagement of financial policies and the banking system in the United States has been blamed for triggering the crisis, which has dragged other countries down with it.

But even during this time of crisis, Indonesia’s economy fared relatively better than those of its neighbors, with some Asian countries even plunging into a deep recession.

The Finance Ministry predicted Indonesia’s economy grew 4.6 percent in the first quarter, thanks to continued robust domestic consumption amid slumping exports and foreign direct investment.

President Susilo Bambang Yudhoyono said the economy grew between 4.6 and 4.8 percent in the first quarter.

“We need to be thankful, as our economy is faring better than we previously thought. We came third after China and India [in the Asian region in terms of economic growth],” Yudhoyono said.

“We hope the [economic] growth will reach 4.5 percent throughout the year.” Turning to next year, the government is upbeat economic growth will pick up speed. In addition to an estimated recovery in the global economy, the higher growth will also be attributable to another round of stimulus spending.

State Minister for National Development Planning Paskah Suzetta confirmed Wednesday that another stimulus would be on the cards for next year to further bolster the economy.

The stimulus funds could reach “up to 21 trillion rupiah [$1.98 billion]”. The figure is lower than what the government had set aside for this year’s elections.

Since there will be no elections next year, “that same amount of fund will be used for the stimulus, as well as for weaponry and programs for the empowerment of people living in rural areas,” he told reporters.

The budget allocation for weaponry will be 1 trillion rupiah, while for the empowerment programs it will be 4 trillion rupiah, he added. Additional funds for weaponry will be obtained from domestic borrowing.

Mulyani said the economy might grow by between 5 and 6 percent next year.

“The government will create clear policies to spark confidence so that the economy is seen as being managed coherently,” she said.

“This is a crucial year, and hopefully next year we can recover from the global financial crisis.”

The stimulus will be used to raise people’s purchasing power and develop labor-intensive programs.

A further round of tax cuts for corporations, from 28 percent this year to 25 percent next year, is also expected to spur growth. That will make state tax revenue grow “moderately” by 14 percent, she added.




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