Jakarta (The Jakarta Post/ANN) - Despite recent widespread euphoria within the financial sector after Indonesia regained investment-grade status from international rating agencies, senior economists have warned that the global economic slowdown could hinder Indonesia's economic growth.
The economists said that with the poorer than expected global economy, it would be difficult for the government to achieve its economic target of 6.7 per cent growth this year, as the decline in exports as a result of the fall in the global demand would slow the country's economy.
"The 6.7 per cent growth target is too optimistic and it is difficult to achieve because we have not seen any progress in the crisis in Europe. Greece's condition is actually getting worse," senior economist at Standard Chartered Bank Fauzi Ichsan said in Jakarta on Thursday following the bank's seminar "Fragile West, Resilient East".
"In the worst-case scenario, the Indonesian economy could grow by only 5.8 per cent this year," he added.
The government earlier said it was optimistic that the country's GDP growth target of 6.7 per cent this year could be achieved as high consumer spending and exports were expected to power economic growth. Indonesia's GDP growth reached 6.5 per cent in 2011 rising from 6.1 per cent in 2010.
Fauzi said that the crisis in Europe would have negative effects on the Indonesian economy as the economic slowdown in the eurozone would not only cripple export demand in that region but also other parts of the world.
He also said that if the euro dropped further, treasury bonds issued by crisis-hit countries such as Greece, Ireland, Portugal, Italy, and Spain would be weak, and this would have serious implications for the European banking system.
Based on Standard Chartered's latest research, the eurozone economies will see a 1.5 per cent decline while the US will achieve 1.7 per cent economic growth this year. The bank projects that global economic growth will slow to 2 per cent in 2012 from 3 per cent last year.
If the global economy deteriorated further, the Indonesian economy would grow by only 5.8 per cent, Ikhsan said. "But, if conditions in Europe improve this year, Indonesia will see growth of between 6.2 and 6.3 per cent," he added.
In a separate interview, Anton Gunawan, chief economist at Bank Danamon said that the most pessimistic scenario was that Indonesia could see only 5.5 to 5.6 per cent growth this year.
The government therefore needed to take concrete steps to ease any negative impact, he said.
"The government should accelerate infrastructure projects and increase the non-taxable income [PTKP]," he said.
He also said that the government should expand poverty-reduction programs, such as the National Program for Community Empowerment (PNPM), to help ease the financial burdens on low-income people.
Previously, Finance Minister Agus Martowardojo said that the government was considering cutting the GDP target to about 6.5 per cent from the 6.7 per cent economic growth assumption stated in the 2012 state budget (APBN).
Agus said that he needed to revise several things such as infrastructure and government spending because Indonesia had started to feel the effects of the global crisis.
The rupiah fell 0.2 per cent to 9,050 per dollar as of 4:03 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg. Indonesian share prices were also under selling pressure with the main price indicator, the Jakarta Composite Index (JCI), losing 0.64 per cent to close at 3,927.61.
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