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Indonesia's macro economy expanding in 2011.

Indonesia posted strong economic growth of 6.1% in 2010 amid the global financial crisis. Major economies like Europe and the United States have been the hardest hit by the crisis the after effects of which still pose a stumbling block in the struggle for recovery.

The strength of Indonesia's economic fundamentals as reflected by the macro economic indicators--growing exports, rising value of rupiah, the composite share price index (IHSG) that jumped from a peak level to a new record--have contributed to improving international confidence in the country's economy. The improvement in confidence is reflected by the strong inflows of foreign capital to the country. Part of the funds is invested in the share market and as Foreign Direct Investment (FDI).

In 2009, when the world's economy was jolted by the financial crisis that resulted in a contraction of 1.9%, (according to the WDI and GDF 2010, World Bank Statistics), Indonesia's exports shrank by almost 15% to US$ 116 billion from US$137 billion in 2008. However, in the last quarter of that year the country's exports began to scale up and in 2010, exports grew steadily to reach US$ 157.7 billion or an increase of 35.4 % from 2009. The export value in 2010 already exceeded the previous record of US$ 137 billion in 2008.

In the first quarter of 2011, the country's exports grew further to reach US$ 45.31 billion in the three months period.--Or an increase of 27.51 % on-year.

The increase in exports was followed by an increase in imports. In the first quarter of 2011, imports were recorded at US$ 38.78 billion or an increase of 29.46 % on-year.

The increase in imports indicated the revival of the manufacturing industry as the imports were dominated by industrial basic materials and capital goods. The growing imports also indicated an increase in public consumption to follow improved purchasing power. Lower competitiveness of local products also contributed to increase in imports such as textile imports. Other factors contributing the increase in imports is free trade agreement between Indonesia and China resulting in floods of imports from that country.

The strong inflows of foreign capital to Indonesia are an indication of improved international confidence in the country's economy. The inflows of foreign capital also contributed to pushing up the IHSG in 2010 to reach 3,684 points in December 2010 up from 2,534 points in 2009.

In the first quarter of 2011, the IHSG grew by lower rate because of a number of external factors. A number of countries are still suffering under the after effects of the global financial crisis such as Greece. The crisis in Greece is even feared to spread to other countries including Spain, Portugal, Ireland and Italy.

In March 2011, the IHSG stood at the level of 3,678.

Meanwhile, the rupiah was quite stable in 2010. At the height of the crisis, the rupiah plunged to the level of 12,000 per US dollar, but later it regained some of its value to reach the level of 8,900 per US$ by the end of December, 2010--the level considered safe that would benefit both the consumers and exporters. In the first quarter of 2001, the rupiah continued to gain to hover around 8,774 per US$.

The inflows of foreign capital also contributed to increase in the country's foreign exchange reserves. In December, 2010, the country's foreign exchange reserves totaled US$ 96.2 billion, up from US$ 66.1 billion a year earlier. By March 2011, the reserves already exceeded the psychological level of US$ 100 billion to reach US$ 105.7 billion. It is predicted the reserves will continue to scale up with the continued inflow of foreign capital and growing exports.

Increase was recorded in exports of commodities in almost all sectors in 2010. A significant increase was recorded in the exports of manufactured goods and mining products. The increase in the exports of manufactured goods followed the revival of some of the economies among Indonesia's export destinations such as the United States and Europe in 2010. The increase in the exports of mining products followed the growing demand and rising prices of the mining commodities after the slump in 2009.

GDP in quarter I 2011 grew 6.5% (y-on-y)

The country's GDP in the first quarter of 2011 grew 6.5% on-year and increase was recorded in the GDP of almost all sectors. The highest growth of 13.8% was recorded in the transport and communications sector and the lowest growth of 3.4% was recorded in agricultural sector. The mining sector grew in GDP by 4.6% in quarter I of 2011

In 2010, Indonesia already fully recovered from the global crisis marked with a fairly strong growth.

Contribution of mining sector growing but decline recorded in the contribution of the manufacturing sector

The contribution of the manufacturing sector has declined over the past 10 years following the monetary crisis in 1998, but it remained the largest contributor to the countries GDP reaching 24.1%, followed by the agricultural and trade sectors.

The manufacturing sector began to grow in the past three years, but it remained lagging behind compared to other sectors. . In 2008, the manufacturing sector contributed 27.8% to the country's GDP, down to 24.8% in 2010.

The country is even feared to undergo the process of de-industrialization with old factory machines needing immediate replacement. Investment in the manufacturing sector is not enough to make up for machines to be scrapped.

After the 1998 monetary crisis, the country's manufacturing sector has remained in the doldrums. Meanwhile banks remained reluctant to provide financial support modernization of the manufacturing sector. Banks still see risk in investing in the sector.

Actually progress has been recorded since 2010 in the efforts to revive the manufacturing sector led by the food and beverage industry and automotive industry. The two sectors grew strongly in 2010 and the trend continued in 2011. Car sales in 2010 hit an all time record at 764,000 units.

The decline in the percentage of the contribution of the manufacturing sector to GDP in the last three years was partly attributable to faster growth of other sectors such as a result of the rising prices of farm and mining primary commodities such as palm oil, coal, etc.

The mining sector has continued to expand in the past three years increasing its contribution to the GDP from 10.6% in 2009 to 11.7% in 2010. Investment in the mining sector is relatively low but the export earning from the sector grew sharply in the past several years.

With strong economic fundamentals, Indonesia is expected to continue to post fairly strong growth in 2011 despite the crisis still stalking the world's major economies
Table--1
Macro economic indicators, 2007-2011 *)

 2007 2008 2009

Gross Domestic Product Growth (%) 6,35% 6,01% 4,55%)
Bank Indonesia key rate 8,00% 9,25% 6,50%
Rupiah value against US$ ****) 9.419 10.950 9.400
IHSG 2.745 1.355 2.534
Price of premium gasoline per
 liter (Rp) 4.500 5.000 4.500
Foreign exchange reserves
 (US$ million) 56.920 51.639 66.104
Inflation (%) 6,59 7,49 2,78
Total Exports (US$ million) 114.023 136.761 116.490
Total Imports (US$ million) 74.402 129.197 96.856

 2010 2011 *)

Gross Domestic Product Growth (%) 6,1% **) 6,5% ***)
Bank Indonesia key rate 6,50% 6,75%
Rupiah value against US$ ****) 8.991 8.774
IHSG 3.684 3.678
Price of premium gasoline per
 liter (Rp) 4500 4.500
Foreign exchange reserves
 (US$ million) 96.207 105.709
Inflation (%) 6,96 6,65 ***)
Total Exports (US$ million) 157.730 45.313 ***)
Total Imports (US$ million) 135.610 38.787 ***)

Note: *) March 2011
**) provisional figure
***) position in March, 2011, y-on-y,
****) January - March 2011
*****) BI Middle Exchange Rate

Source: BPS, BI

Table--2
Indonesia's exports in value by sectors, 2009-2011

 Exports (US$ billion)

 Jan-March
 Uraian 2009 2010) 2011

Total Exports 116,5 157,7 45,3
Oil and gas 19,02 28,1 8,2
Non-oil/gas 97,47 129,7 37,1
Agriculture 4,4 5,0 1,3
--Manufacture 73,4 98,0 28,4
--Mining & other 19,7 26,7 7,5

 % of total

 Jan-March
 Uraian 2009 2010 2011

Total Exports 100 100 100
Oil and gas 16,33 17,78 18,90
Non-oil/gas 83,67 82,22 81,91
Agriculture 3,75 3,17 2,83
--Manufacture 63,03 62,14 62,57
--Mining & other 16,89 16,91 16,51

Source: BPS

Table--3
GDP growth by sectors, 2006-2011

(%)

No. Sector 2006 2007 2008

1. Agriculture 2.98 2.43 4.83
2. Mining and quarry 2.21 1.65 0.66
3. Manufacture 4.63 4.25 3.66
4. Electricity, gas and drinking water 5.87 10.63 10.92
5. Construction, buildings 8.97 7.48 7.51
6. Trade, hotel and restaurant 6.13 7.58 6.87
7. Transport and communication 13.64 17.11 16.57
8. Finance, rent and corporate service 5.65 8.54 8.24
9. Services 6.22 6.71 6.23
 GDP 5.48 6.11 6.01
 Non-oil/gas GDP 6.09 6.55 6.46

No. Sector 2009 2010 *) 2011 **)

1. Agriculture 4.13 2.9 3.4
2. Mining and quarry 4.37 3.5 4.6
3. Manufacture 2.11 4.5 5.0
4. Electricity, gas and drinking water 13.78 5.3 4.2
5. Construction, buildings 7.05 7.0 5.3
6. Trade, hotel and restaurant 1.14 8.7 7.9
7. Transport and communication 15.53 13.5 13.8
8. Finance, rent and corporate service 5.05 5.7 7.3
9. Services 6.40 6.0 7.0
 GDP 4.55 6.1 6.5
 Non-oil/gas GDP 4.93 6.6 6.9

Note: *) provisional figure, GDP 2006-2010 cumulative ,
figures in 2011 year-on-year. **) quarter I, 2011 against
quarter I, 2010, y-on-y

Table--4
GDP structure by sector in 2008--2011

(%)

Sector 2008 2009 2010 2011 *)

1. Agriculture, animal husbandry, 14,5 15,3 15,3 15,6
 forestry and fishery
2. Mining and quarry 10,9 10,6 11,2 11,7
3. Manufacturing industry 27,8 26,4 24,8 24,1
4. Electricity , gas and drinking water 0,8 0,8 0,8 0,8
5. Construction 8,5 9,9 10,3 10,0
6. Trade, hotel and restaurant 14 13,3 13,7 13,7
7. Transport and communications 6,3 6,3 6,5 6,6
8. Finance, real estate and corporate 7,5 7,2 7,2 7,4
 services
9. Services 9,7 10,2 10,2 10,1
Gross Domestic Product (GDP) 100 100 100 100,0
GDP without oil and gas 89,5 91,7 92,2 92,0

Source: BPS
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Title Annotation:FOCUS
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Feb 1, 2011
Words:1823
Previous Article:Appendices.
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