Indonesia GDP Expands Fastest Since 1996 as Investment Gains

Indonesia's President Susilo Bambang Yudhoyono
Susilo Bambang Yudhoyono, Indonesia's president. Photographer: Dimas Ardian/Bloomberg

Indonesia’s economy grew last year at the fastest pace since before the Asian financial crisis as rising investment and domestic spending countered a slowdown in export demand due to Europe’s debt crisis.

Gross domestic product rose 6.46 percent in 2011, the statistics bureau said in Jakarta today, after a revised 6.2 percent gain the previous year. The median of 15 estimates in a Bloomberg News survey was for a 6.44 percent increase. The economy expanded 6.49 percent last quarter from a year earlier.

Southeast Asia’s largest economy has outperformed neighbors including Thailand and the Philippines as two rate cuts in the last quarter aided President Susilo Bambang Yudhoyono’s efforts to boost GDP by an average 6.6 percent a year. The country regained investment-grade ratings from Moody’s Investors Service and Fitch Ratings after 14 years in recent weeks, boosting investment prospects as it plans transport and utility projects.

“Indonesia remains the standout in Asia,” said Chua Hak Bin, a Singapore-based economist at Bank of America Merrill Lynch. While economic expansion will probably ease to about 6 percent in 2012 on weaker external demand, “robust consumer spending and strengthening infrastructure and foreign investment will support growth,” he said.

The nation’s currency has advanced about 1 percent against the dollar this year after the Moody’s and Fitch upgrades. The rupiah traded little changed at 8,990 a dollar as of 4:58 p.m. in Jakarta today, according to prices from local banks compiled by Bloomberg.

Realizing Gains

The Jakarta Composite index declined 1 percent to close at 3,974.79, falling for a second day. The fourth-quarter growth report failed to lift the market as investors realized gains in stocks after the index rose to a five-month high last week, said Lanang Trihardian, an analyst at PT Syailendra Capital in Jakarta. The benchmark index gained 1.3 percent to 4,016.9 on Feb. 2, the highest close since Aug. 18.

The country’s growth in 2011 was the fastest since 1996, according to International Monetary Fund data. The $707 billion economy has expanded more than 6 percent for five straight quarters, showing it’s weathering a decline in global demand that has hurt growth across Asia.

South Korea’s economy grew the least in two years last quarter and China reported last month its weakest expansion in 10 quarters. Philippine GDP rose 3.7 percent in the fourth quarter from a year earlier, while Thailand’s grew 3.5 percent in the third quarter. Singapore’s economy shrank in the fourth quarter from the previous three months.

Still Resilient

“Indonesia’s economy is still resilient amid the global slowdown even as other countries in Asia have started contracting,” Destry Damayanti, chief economist at PT Bank Mandiri, said in Jakarta today. “To minimize the impact of the global slowdown, the government needs to push state spending as it won’t be healthy if we push private consumption to boost the GDP further.”

Yudhoyono plans to boost government capital spending by 19 percent to 168 trillion rupiah ($19 billion) this year to improve infrastructure such as railways, airports and roads. Indonesia’s parliament approved in December a land-acquisition bill that will allow the government to accelerate projects.

Investment in the three months ended Dec. 31 rose 19 percent from a year earlier, according to the Investment Coordinating Board. For 2011 as a whole, investment gained 21 percent from a year earlier.

‘Good Fundamentals’

Suzuki Motor Corp., the third-biggest carmaker in Indonesia, will spend 60 billion yen ($782 million) to increase capacity in the Southeast Asian nation, including setting up another factory to build engines, it said in January.

“Indonesia has good economic fundamentals,” said Davy Tuilan, a director at Suzuki’s Indonesia unit in Jakarta.

Indonesia’s policy makers have signaled they are prepared to support the economy with monetary and fiscal stimulus as Europe’s protracted sovereign-debt crisis threatens global expansion and crimps demand for Asian exports.

Bank Indonesia, which kept its benchmark rate unchanged in January for a second month after reductions in October and November, has widened the lower range of its interbank lending rate since then to push borrowing costs lower. The government said in September it was preparing a stimulus package, and Bambang Brodjonegoro, head of fiscal policy at the finance ministry, said last month the country will increase spending to bolster growth and limit the impact of a global slowdown.

Weaker demand could hurt the Asian economy, Finance Minister Agus Martowardojo said in Jakarta today. Even so, policy makers need to remain alert against food and energy prices, he said.

Bank Indonesia will keep its benchmark rate at a record-low 6 percent, according to 11 of 15 estimates in a Bloomberg News survey before a Feb. 9 decision.

Moody’s raised Indonesia’s sovereign debt rating to Baa3 from Ba1 last month. Fitch upgraded its rating to BBB- in December, citing “strong and resilient” growth and declining public-debt ratios.

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