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Indonesia: Low inflation and subsidies keep consumption engine going

Indonesia’s economy is growing at a healthy pace aided by strong consumption, rising investments and declining inflation.

For the second quarter ended June 2011, the country’s GDP grew at 6.49%. This was the third consecutive quarter of more than 6% growth. Indonesia partially achieved this growth by holding inflation low and keeping interest rates steady even as many of its neighboring economies continued to fight soaring inflation with interest rate hikes. The country’s central bank has held interest rates steady since February 2011, which in turn has helped stimulate consumer spending.

The country’s government for its part has helped cushion the effects of high oil prices through a mix of generous subsidies and a strong domestic currency, the Indonesian rupiah. The Indonesian rupiah, the second-best performing currency in the region after the Singapore dollar, has risen close to 4% against the U.S. dollar in 2011 and has kept imported inflation low. Furthermore, as domestic consumption accounts for a greater share of the Indonesian economy, the country has weathered the effects of the downturn in developed markets such as the U.S. and the European Union in a better way than export-oriented economies such as Malaysia and Singapore.

Being a commodity exporter is also helping the country. Many emerging markets that are still growing relatively strongly such as China and India are buying energy and metal commodities from Indonesia. For instance in July, Indonesia’s exports of refined tin jumped 15% from June figures. Indonesia expects tin production to touch 90,000 tons for 2011, up from 78,965 tons in 2010.

The Wall Street Journal reported that with strong growth and low public debt, Indonesia is just shy of getting its first investment-grade credit rating in its history. The country expects GDP to grow at 6.8% in 2011 up from 6.1% in 2010. Attracted by such growth, foreign investors seem to be lining up investments. During the second quarter ended June, foreign direct investments to the country jumped 21.1% to $5 billion.

Source: www.thomaswhite.com

Fact about Indonesia:

Area:
Total Area: 1,904,569 sq km (country comparison to the world: 15 )
land: 1,811,569 sq km
water: 93,000 sq km

Population:
245,613,043 (July 2011 est.)

Age Structure:
0-14 years: 27.3% (male 34,165,213/female 32,978,841)
15-64 years: 66.5% (male 82,104,636/female 81,263,055)
65 years and over: 6.1% (male 6,654,695/female 8,446,603) (2011 est.)

Geographic:
Archipelago of 17,508 islands (6,000 inhabited); straddles equator; strategic location astride or along major sea lanes from Indian Ocean to Pacific Ocean

Major City:
JAKARTA (capital) 9.121 million; Surabaya 2.509 million; Bandung 2.412 million; Medan 2.131 million; Semarang 1.296 million (2009)

GDP:
$1.03 trillion (2010 est.) (country comparison to the world: 16 )
$970.6 billion (2009 est.)
$928.2 billion (2008 est.)
note: data are in 2010 US dollars

GDP per Capita:
$4,200 (2010 est.) (country comparison to the world: 155 )
$4,000 (2009 est.)
$3,900 (2008 est.)
note: data are in 2010 US dollars