Indonesia GDP growth on track despite fall in 3rd quarter: central bank

Business Desk in Jakarta/The Jakarta Post
Asia News Network

Jakarta (The Jakarta Post/ANN) - Indonesia central bank Governor Darmin Nasution said he was optimistic the growth of the country's gross domestic product (GDP) would meet the central bank's target of 6.3 per cent this year despite slowdown in the third quarter.

He said that economy would pick up at a higher growth rate in the final quarter thanks to an increase in investment and the government's higher capital spending.

Indonesia's GDP grew 6.2 per cent in the third quarter from a year earlier, down from 6.4 per cent in the second quarter, partly due to decline in exports and low government spending.

"I see our economy will expand at around 6.2 to 6.3 per cent in the fourth quarter, bringing in the yearly economic growth at 6.3 per cent," he told reporters at Bank Indonesia (BI), the central bank, headquarters in Jakarta yesterday.

The stalling recovery in the world's economy "has put downward pressure" on Indonesia's economic growth, Nasution acknowledged.

However, he predicted that investment would remain strong in the fourth quarter and could compensate for the likely decline in exports caused by the global slowdown.

The central bank governor also promised to maintain the loose monetary policy to ensure Indonesia maintains its economic expansion.

In its board of governors meeting Thursday, BI decided to keep its policy rate at the historic low of 5.75 per cent for the ninth consecutive months.

By keeping its policy rate unchanged, BI followed a different path to other central banks in the region, which have been busy cutting rates to spur their economies as response to the global slowdown. Last month, the Philippines, Thailand, South Korea, Brazil and Australia lowered their policy rates by 25 per cent.

"Nowadays, it seems that cutting rates has become a trend among many central banks throughout the world. BI, however, does not have to do it because we cut our rates already last year to anticipate the slowdown," said Nasution.

Contacted separately, Airlangga University economist M. Ikhsan Modjo shared similar views. He believed Indonesia would be able to achieve the annual economic growth of 6.3 per cent this year on the back of strong investment and higher government spending.

"The pattern is always the same every year: The government usually accelerate the realisation of capital spending in the fourth quarter," he said, referring to the fact that, as of September, the government had only managed to realise 36.8 per cent of the capital spending set at 168.7 trillion rupiah (US$17.5 billion).

Meanwhile, BI announced that Indonesia recorded $800 million of surplus in its balance of payment in the third quarter, after previously recording a $2.8 billion deficit in the second quarter.

The surplus was attributed to the decline in the deficit in the current account, one of the two primary components of the balance of payments, with the other being the capital account.

In the third quarter this year, current account deficit stood at $5.3 billion in the third quarter, or 2.4 per cent of the GDP, compared to the second quarter's figure of $7.7 billion (3.5 per cent of GDP), according to the central bank.