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August 12, 2008

Indonesia: Q2 GDP growth may exceed 6.3% recorded in Q1
Indonesia’s finance ministry believes the country’s economic growth in the second quarter should be at the same level or better than 6.3 percent of the first quarter, due to exports and strong domestic demand, said Reuters on Monday.

The country’s finance ministry earlier had forecast the economic growth in the second quarter to decline to 6.1 percent in the second quarter, but has the figure revised.

Reuters quoted Indonesian finance minister Sri Mulyani Indrawati as saying, “I am confident that it will be the same as, or even better than, in the first quarter, driven by a combination of factors.”

She also pointed out that the net impact of lower global oil prices would probably be neutral for the state budget, because while the cost of fuel subsidies would decline, so would tax receipts from the oil and gas sector.

The statistics bureau is due to announce second-quarter gross domestic product data on Thursday.

Indrawati’s latest GDP growth estimate appeared to be more upbeat than that of the central bank as Bank Indonesia last week published a quarterly report in which its estimate for second-quarter growth was 6.0 percent, which would be the lowest growth rate in a year.

The central bank said that strong commodities prices had helped boost the economy, which exports large volumes of palm oil, rubber, and cocoa, but said export growth had slowed due to the weak global economy.

The central bank revised down its forecast for full-year growth to 6.0 percent, from 6.2 percent previously. Indonesia’s economy expanded 6.3 percent in 2007, the fastest in more than a decade.

Bank Indonesia raised its key rate, the overnight policy rate BIPG, to 9.0 percent last week, the fourth rate rise this year, as it seeks to contain inflation, which hit 11.9 percent in July.

Inflation is at the highest level in nearly two years, following the government’s decision to raise domestic subsidised fuel prices in May in a bid to cut its costly fuel subsidies. The subsidy bill has ballooned on the back of soaring global oil prices, although these have recently come off their record highs.

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