Indonesia will maintain an annual economic growth rate of more than 6 percent for the next several years, despite concerns on the nation’s widening current account deficit, analysts from the Royal Bank of Scotland (RBS) say.
In a report titled “Indonesia: Staying Afloat in a Perilous World” that was released on Thursday, the Edinburgh-based bank said that Indonesia’s annual economic growth rate would reach at least 6.2 percent by the end of 2012, citing domestic demand and robust investment as key growth drivers.
Indonesia might even book a higher annual growth rate in 2013, according to Erik Lueth, the senior regional economist at RBS. “But it depends largely on what’s happening on the global economy.”
Lueth said that it was “highly possible” that Indonesia’s economy would meet the 6.8 percent annual growth target recently set by the government, noting that the nation recorded 6.4 percent growth in the first quarter of 2012, exceeding expectations.
According to Lueth, Indonesia was unlikely to follow in the footsteps of India, which has recently shown signs of an overheating economy.
India reported second quarter inflation of 7.25 percent, which was likely to decelerate its annual economic growth for 2012 to a nine-year low of 5.3 percent.
“When some investors ompare Indonesia’s CAD [current account deficit] with India’s, they are not looking very closely. The situations in Indonesia and India are very different, because Indonesia’s CAD is driven by investment, while India’s is financed by government consumption,” Lueth said.
He described Indonesia’s CAD of US$6.9 billion, or 3.1 percent of GDP, as a “symptom of good growth”, referring to the dominance of capital goods imports in the CAD.
Running a current account deficit was normal for nations in the early stages of development such as Indonesia, which has limited capital and thus needs to borrow from abroad to finance economic expansion, Lueth said.
“The fact that the CAD is largely for investment is good, because it will boost [Indonesia’s] growth in the future,” he said.
RBS vice president of economics research Enrico Tanuwidjaja said that Indonesia’s CAD would decrease in the third and fourth quarter, predicting that Bank Indonesia (BI) would tolerate a weaker rupiah to push down the nation’s imports and to make its exports more competitive abroad.
“We forecast that the rupiah in the next six or nine months will continue to depreciate to a fair level of 9,600 to 9,700 [per US dollar],” Enrico said, adding that he expected the exchange rate to return to
Rp 9,200 by the end of 2013, when analysts have forecast brighter prospects for the global economy.
Analysts from RBS agreed, saying that while BI had kept monetary policy loose by holding its benchmark rate to a historic low of 5.47 percent for seven consecutive months, the central bank also implemented the right regulations to maintain growth at healthy and sustainable pace.
They referred to the central bank’s policy to increase the deposit facility rate by 25 basis points to 4 percent, as well as introducing a minimum down payment limit policy for housing and automotive loans. (sat)
