Indonesia GDP Grows Less Than 6%Novrida Manurung and Widya Utami
Indonesia said it will allow foreign investment in airports and ports as the government seeks to revitalize an economy growing at the weakest pace since the global recession.
The country may also ease limits on overseas holdings in its telecommunications and pharmaceutical industries, the Investment Coordinating Board said today, hours after a report showed economic expansion slowed for a fifth quarter. Gross domestic product increased 5.62 percent in the three months ended Sept. 30 from a year earlier, as a declining rupiah restrained investment in Southeast Asia’s largest economy.
Indonesian policy makers are grappling with a depreciated exchange rate, elevated inflation and diminished foreign capital inflows undermining President Susilo Bambang Yudhoyono’s legacy of economic stability before he steps down next year. His failure to fix infrastructure gaps in his two terms has added to price pressures, threatening his party’s chances at elections in 2014.
“The dust has yet to settle on the slowdown definitely,” said Wellian Wiranto, a Singapore-based investment strategist at the wealth-management unit of Barclays Plc. “Hopefully it will be replaced by construction dust coming from new infrastructure investment if they stick to these opening up measures.”
The rupiah fell 0.5 percent to 11,415 per dollar as of 3:45 p.m. in Jakarta today, according to prices from local banks compiled by Bloomberg. It has dropped more than 15 percent this year, the worst performer among Asia’s 11 most-active currencies tracked by Bloomberg.
The government will allow foreign ownership of as much as 100 percent on airports, airport services and ports, Mahendra Siregar, chairman of the Investment Coordinating Board, told reporters today. For ground and freight terminals, it may be as high as 49 percent, while a cap on overseas holdings in 10 other industries may be eased, he said.
Bank Indonesia has raised its key rate by 1.5 percentage points since early June to shore up the rupiah and stem price gains, while the government predicts growth next year will be slower as it reins in spending to narrow a record current-account gap. The central bank will announce its next rate decision Nov. 12.
The year-on-year expansion compares with a revised 5.83 percent pace for the second quarter and the median estimate of 5.6 percent in a Bloomberg News survey of 23 economists. GDP increased 2.96 percent last quarter from the previous three months, when it expanded 2.61 percent.
“Growth is still some way from bottoming,” said Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG. “The combination of the lagged effects of higher interest rates,” a downturn in commodity-related industries and weaker real income growth will hurt expansion in private consumption, he said.
The country will hold parliamentary elections in April and a presidential one in July. Yudhoyono can’t run for a third term.
Bank Indonesia cut its 2013 economic growth forecast last month to between 5.5 percent and 5.9 percent, from as much as 6.2 percent earlier. Inflation remained above 8 percent for a fourth month in October.
“The increase in prices -- such as transportation costs as a result of higher subsidized fuel price and the rise in electricity tariffs -- all of these have put a cap on consumer spending,” Henri Honoris, President Director of PT Modern PutraIndonesia, the franchise holder of 7-Eleven convenience stores in the country, said in an Oct. 31 interview.
Foreign direct investment into Indonesia rose 18.4 percent last quarter from a year earlier, after increasing about 19 percent in the April-June period.
“We have to delay our expansion, this year we won’t open new shops as aggressively as the previous years,” Honoris said. “We are adjusting our products and services over the next one or two years as we observe the economic conditions.”
The World Bank said last month downside risks to Indonesia’s economic outlook are sizeable, as higher borrowing costs and inflation may have a greater-than-expected effect on domestic demand. Exports have dropped for 18 consecutive months.
“External demand continues to provide little boost to growth,” as exporters’ earnings remain under pressure from low commodity prices, Gundy Cahyadi, a Singapore-based economist at DBS Group Holdings Ltd., said before the report.
The current-account shortfall was a record 4.4 percent of GDP in the three months through June, and central bank Governor Agus Martowardojo has said it may have narrowed to about 3.3 percent to 3.5 percent of GDP last quarter.
Bank Indonesia and the government are serious about addressing the current-account deficit, Finance Minister Chatib Basri said Oct. 25. “To manage it, our macro policies must be tight” for both monetary and fiscal matters, he said.