Indonesia 2012 Economic Growth Is Estimated At 5.8%

Standard Chartered Bank forecasts that Indonesian 2012 economic growth will reach 5.8 percent, which is lower than the 2011 economic growth (6.5 percent).

"2011 is a year full of crisis, such as the European financial crisis and the "Arab Springs" in the Middle East, but Indonesia's economy managed to grow very well. However, Indonesia must remain cautious for the start of 2012," said Director of Standard Chartered Bank in Indonesia, Tom Aaker.

Economic Growth

Standard Chartered Bank issued a report on the prediction of global economic conditions as well as the economic conditions in some countries. The report showed that global economic growth slowed to 2.2 percent in 2012 from 3 percent in 2011.

Indonesia's 2012 economic growth rate is estimated to 5.8 percent due to the impact of declining foreign direct investment (FDI) and the withdrawal of foreign currency funds that dominate the banking funds, and reduced exports.

"If the Euro deteriorate, the price of debt securities issued by troubled-European-countries such as Greece, Ireland, Portugal and Spain will continue to weaken, eventually European banks have also been affected as there are fallacious securities valued at 300 billion euros," said Standard Chartered Bank economist, Fauzi Ichsan.

This makes the European banking devastated and could not inject fresh capital to maintain the Capital Adequacy Ratio (CAR) in Europe, meaning would withdraw funds Asian banks.

"Foreign exchange is withdrawn from Asian banks would cause banking has foreign exchange shortages to finance capital expenditure. The limited purchase of capital will cause the private investment slows down," said Fauzi.

With these calculations, Standard Chartered Bank estimates that the investment growth is likely to decrease to 8.2 percent from 10.3 percent in 2011. But domestic consumption growth is expected to remain 4.7 percent in 2012.

While the inflation is likely to reach 5 percent in the late 2012 as a result of increased electricity tariffs and fuel prices as well as the rising in rice prices post-flood in Thailand.

According to Standard Chartered Bank, the 0.1 percent budget surplus in gross domestic product (GDP) in 2011 would make the government reject the rise in fuel prices. Despite that the subsidies for the fuel would need 17.5 percent in 2012 state budget. The trick is to increase the tax of the commodity sector such as palm oil and coal.

Indonesia banks interest rate is expected to fall to 5.75 percent in the first quarter of 2012. Bank Indonesia also would reduce the Indonesian banks "net interest margin" into 5.5 to 6 percent, thereby reducing the 2012 bank credit growth up to 20 percent.

The budget deficit would gradually increase from 0.6 percent of the value of GDP in 2010 (from the government target of 2.1 percent) to 1 percent in 2011 (from the government target of 2.1 per cent) to 1.3 percent in 2012 (from target 1.5 percent).

Source: Analisa

20 Rules Will Be Revised to Smooth the Investment

The Government acknowledged that there are 20 regulations are currently being revised to ease the investing environment in Indonesia. One of them is the labor problems.

Minister of Industry, MS Hidayat, said that any regulations that become current investment barriers will be rectified.

Investment Regulation in Indonesia

Government has begun to address those regulations in order to make changes, although not being mention specifically.

"It’s part of government commitment to create a more conducive investment environment. So there are more than 20 regulations that will be revised, updated and adjusted."

"The Land Acquisition Law hopefully will be approved by Parliament today, as it has been approved in the committee," said Hidayat in his office on Friday (16/12).

According to Hidayat, the revision includes government-issued regulations. For example, Law No. 13 Year 2003 about employment.

"I also expect that the Labor Law No. 13, will be completely revised by 2012 so that the investor barriers will be resolved,” he said.

Regarding the Indonesian investment rank that has been increased by ratings agency Fitch, he said that at first, government predicted the investment grade will be given in 2012.

"But last night it has been announced, (i am sure) the Coordinating Minister will hold a meeting to prevent in case there is any increase or surge in FDI (foreign direct investment) or portfolio,” he said.

Hidayat added that the other issues besides regulation is the high demand for infrastructure issue.

Source: Analisa