Indonesia May Expand Less Than 6% on Europe

Indonesia’s economic growth may slow to less than 6 percent in 2012 if Europe suffers a severe recession, said Bambang Brodjonegoro, the head of fiscal policy at the nation’s finance ministry.

Gross domestic product may increase as little as 5.7 percent this year after an expansion of about 6.5 percent in 2011, Brodjonegoro said in an interview with Bloomberg News in Jakarta yesterday said. The government will increase spending to bolster growth and limit the impact of a global slowdown, he said.

Asian policy makers have shifted their focus to shielding growth, rather than stemming inflation, as Europe’s sovereign woes and a struggling U.S. economy increase the risk of another global recession. The U.S. Federal Reserve said yesterday it is considering additional asset purchases as it extended its pledge to keep interest rates low through at least late 2014.

“We will boost government spending especially in infrastructure and domestic consumption to offset the slowdown in exports and investment amid the global turmoil,” Brodjonegoro said. “Our economic growth is still fairly healthy.”

Demand for Indonesian assets has risen after Moody’s Investors Service raised the country’s credit rating to investment grade on Jan. 18. Fitch Ratings brought Indonesia back to investment grade last month after 14 years of junk ratings. The rupiah rose 0.3 percent as of 7:52 a.m. in Jakarta today, according to prices from local banks compiled by Bloomberg.

Capital inflows into Southeast Asia’s largest economy are expected to increase after the rating upgrades and investors will probably seek holdings in Indonesian assets other than its capital markets and government bonds, Brodjonegoro said. The investment grade ranking will also help lenders get cheaper loans from overseas banks, he said.

The government is meeting officials from Standard & Poor’s in March to discuss the nation’s economic progress, Brodjonegoro said. S&P still rates Indonesia one level below investment grade.

To contact the reporter on this story: Hidayat Setiaji in Jakarta at hsetiaji@bloomberg.net; Novrida Manurung in Jakarta at nmanurung@bloomberg.net

To contact the editor responsible for this story: Shamim Adam at Sadam2@bloomberg.net

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