REPUBLIKA.CO.ID,  - By Andi Abdussalam

JAKARTA -- Indonesia's economy this year is forecast to grow below targets previously set at 6.3 percent as a result of the current account deficit, the central bank's increased benchmark rate and postponement of investments by investors.

The National Economic Committee (KEN) predicted that the Indonesian economy would grow 5.7 percent this year, slightly higher than the World Bank's forecast of 5.6 percent.

"What happens in 2013 is worse than the worst scenario we made in the economic outlook 2013. It turns out that it is difficult to predict what is to come, even for only a year," KEN Chairman Chirul Tanjung said at a seminar recently.

In the third quarter of this year, the country's economy grew only 5.6 percent. He said imports have grown faster than exports because of the relatively strong growth of the country's economy amid the global slump.

"As a result, Indonesia suffered a trade deficit followed by the current account deficit," he said.

He added that Bank Indonesia's (BI/the central bank) policy of raising the benchmark interest rate had both advantages and disadvantages. BI raised its benchmark rate to a four-year high of 7.5 percent in November to prop up the weakening rupiah and reduce the persistently high current account deficit.

While it could control inflation and the current account deficit, the policy would also cause an economic slowdown, Chairul said. "It seems investors have begun to postpone plans to invest, waiting until the conditions offer improved opportunities," he said.

World Bank Chief Representative in Indonesia Rodrigo Chaves said the country's investment grew only 4.5 percent in the third quarter of 2013, adding there was less interest, especially in the heavy equipment and machinery industry.

For 2014, the KEN has also predicted that the Indonesian economy's growth rate will slip to 5.5 percent next year, lower than the projected 5.7 percent growth rate expected this year.

"Indonesia's economic growth next year will not be much different from the trend seen at the end of 2013. The economy will grow by an average of 5.5 percent throughout 2014," KEN Chairman Chairul Tanjung said.

The projected 5.5 percent growth rate is a pessimistic scenario, which is most likely to happen, he added.

The committee, itself, had projected that national economic growth would range between 5.5 and 6 percent next year, Chairul said. "We predict that economic growth will come close to the lower limit of the growth range," he stated.

The World Bank predicted Indonesia would suffer an economic slowdown, growing only 5.3 percent in 2014 from an estimated 5.6 percent in 2013.

Falling interest in investment is one of the factors slowing the country's economic growth, Rodrigo Chaves said in the bank's quarterly report.

In addition, the Fed's plan to trim its financial stimulus could cause instability in capital markets, hampering Indonesia's access to external funding, he said.

"Domestic consumption, which has been the main driver of the country's economic growth, is feared to be weakening. The financial projection also looks volatile, as a result of oil fuel subsidy burdens," he said.

"Indonesia has gone through years of challenges, marked with shrinking exports and falling commodity prices, as well as turbulence in capital markets and difficulties in securing external funds. However, monetary policy has supported economic adjustments," he said.

In the latest quarterly report, the World Bank predicted the country's current account deficit would be narrowed from an estimated 3.5 percent of the country's GDP of around US$31 billion in 2013 to 2.6 percent of the GDP of US$23 billion in 2014 on the shrinking growth of imports and moderate growth of exports.

However, optimistic economic forecast for 2014 came from Coordinating Minister for Economic Affairs Hatta Rajasa, who said Indonesia's economic growth in 2014 will surpass the World Bank's forecast of 5.3 percent.

"I am more optimistic than the World Bank. In fact, the economy is forecast to expand 6 percent in the 2014 state budget," said the minister.

He pointed out that he believes the national economy will improve next year and that economic growth in 2014 will be higher than the 5.6-5.8 percent estimated for 2013.

"In my view, the economy's growth this year has been quite good. The global economy, next year, will be slightly better than in 2013. So, our economic performance in 2014 will not be worse than 2013's," he added.

The same optimism was also expressed by Vice President Boediono. He said that the Indonesian economy will grow by five to 6 percent in 2014, with controllable inflation and an improved food price index.

"I am optimistic about the economic growth next year, but we need to maintain a balance between economic stability and growth," Boediono told several journalists and foreign diplomats at the Jakarta Foreign Correspondence Club on Monday.

The vice president forecast that the rupiah will become stable in 2014, amidst a stronger and tighter monetary situation. Boediono noted that by the end of 2013, the inflation rate is predicted to reach eight percent or more, as compared to the national average figure of four to five percent noted in the last few years.

"The eight percent inflation rate is triggered by several factors, including hikes in fuel oil prices and the rise in prices of non-rice food products," he added.

Besides Chief Economic Minister Hatta Rajasa and Vice President Boediono, Head of the Finance Ministry's Macro Economic Policy Affairs Luky Alfirman is also optimistic about Indonesian economic growth next year.

"We estimate the country will report better economic growth next year, despite the rupiah's value against the US dollar, falling to 11.9 thousand. In fact, the depreciation could actually allow exports to bring in more revenues," Luky said.

Besides income from the increased value of exports, the fact that 2014 is an election year for Indonesia will also have an impact on the economy, especially on the services sector, which is responsible for the creation of banners and billboard advertising.

"Industries that produce shirts with political logos or are involved in the promotion of election candidates will boom because political parties will be eager to promote their messages among voters to win their support," he added.

He predicted that the service industry would grow robustly between January and April 2014, which is the campaign period for political parties hoping to contest legislative elections on April 9.

Deputy Finance Minister Bambang Brodjonegoro said policy must be created to build sustainable economic growth that would elevate Indonesia into a high-income country.

There should also be utilization of national human resources through the development of renewable and alternative energy. Also, there should include the processing of resources that could offer high added values and encourage the development of downstream industries.

Increasing productivity is one of the efforts the government can make to maintain and increase Indonesia's economic growth and stability, an economist has said.

"Actually, Indonesia has strong industrial productivity, but it should increase its competitiveness to support the country's more stable economy," Derek Carnegie, economist for the Organization for Economic Cooperation and Development (OECD), said.

Derek noted that the increase could be observed in Indonesia's manufacturing sector, which at present was relatively better than those in other countries grouped in the BRICS (Brazil, Russia, India, China and South Africa.

Ikuti Whatsapp Channel Republika