Indonesia Needs Better Investment Climate: Analysts

JAKARTA ~ Indonesia needs to improve its investment climate and reduce its reliance of commodity exports to achieve its forecast of 6.3 percent economic growth this year, analysts have warned.

Southeast Asia’s largest economy grew six percent in the first quarter from a year earlier, down from 6.1 percent in the previous quarter.

However, the figure was more than the 5.8 percent predicted by economists, and Indonesia’s finance ministers predicted that the economy would regain momentum and hit its fastest-full year growth in more than a decade.

“The growth in the first quarter confirmed that Indonesia has fully recovered from 1997 financial crisis,” said Boediono, coordinating minister for economy.

But Panda Radja Silalahi, an economist with CSIS, called for improved investment conditions to meet growth targets, with Indonesia struggling to overcome an international reputation for legal uncertainty, bureaucratic red tape and corruption.

“The growth of 6 (percent) in the first quarter is a good signal for Indonesian economic conditions in the future. But the government needs to strengthen its commitment to improving the investment climate to enable them to reach 6.3 economic growth in 2007,” Silalahi said on Wednesday.

Juniman, economist with Bank International Indonesia, said first quarter growth was “largely in line with expectations.”

“However, Indonesia cannot just rely on commodity exports. In order to maintain sustainable growth, the government needs to increase exports of value-added manufactured goods,” said Juniman.

First -uarter growth was aided mainly by robust exports that grew 8.9 percent year-on-year, Central Bureau of Statistics chief Rusman Heriawan said Tuesday. Imports were also up 8.4 percent.

Indonesians were also spending more, with household consumption rising 4.5 percent year-on-year while government consumption grew 4.3 percent, he said.

“Household consumption growth was not that outstanding because it came from a very low base in the first quarter of 2006 when the economy was hit by the impact of a fuel price hike,” Heriawan said.

Indonesia was hit by a 126-percent fuel price rise in October 2005.

Gross Domestic Product was up five percent year-on-year in the first quarter of last year, he said.

President Susilo Bambang Yudhoyono said this month that he expected the economy to grow 6 percent or more this year, boosted by falling interest rates and a steady export of commodities.

Yudhoyono predicted it would be enough to help ease poverty, which is chronic in many areas, and unemployment, running at 9.7 percent.

Finance Minister Sri Mulyani Indrawati has said growth was targeted at 6.3 percent this year, which would be the highest since 1996, when the economy expanded 7.8 percent.

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