Indonesia: an upbeat economy

The economy's performance during the first six months of President Susilo Bambang Yudhoyono's administration has been fairly impressive, with gross domestic product growing by 6.65 percent on a yearly basis in the fourth quarter of last year and 6.35 percent in the first quarter of this year.
The quality of growth also significantly improved, with the prime movers now consisting mainly of investment and exports. The 5.13 percent economic growth last year was generated mostly by private and public consumption.
The overall good performance of the country's exports could indicate record-high exports this year. Export figures may rise even further. They may reach some $70 billion by the end of the year. Indonesia's exports grew to an historic high of $69.71 billion last year, up 11.49 percent from 2003, boosted by strong sales of the non-oil and gas commodities of palm oil, electronics, clothing, coal and tin.
The trend has continued this year, with exports from the industrial sector, which account for 66 percent of total exports, expanding by 27.64 percent to $22.5 billion between January and May.
The country's trade balance stood at a surplus of $10.3 billion in the first five months of the year, with imports registered at $23.57 billion.
Approvals for fresh domestic and foreign direct investment (FDI) are on the raise, increasing optimism that a pickup in investor confidence has finally started. On average, fresh investment approvals both from domestic and overseas sources rose by 51 percent in the first semester compared to the same period last year to US $8.5 billion.
FDI approvals during the January to June period alone posted a jump of 72 percent compared to the corresponding period a year earlier. New investment approvals in the chemical and pharmaceutical industry led the advance with 21 projects valued at $2.6 billion, ahead of the construction sector at 53 projects worth $540.7 million.
Also included in the list of FDI approvals were 34 projects worth $531 million in the transportation, warehousing and communications sectors, 22 projects worth $520 million in the mining sector and 34 projects worth $384 million in the food processing sector. The bulk of the FDI proposals came from Britain, Singapore, Canada, the Netherlands and Japan.
The country's FDI approvals reached their peak in 1995 with a record $39.66 billion, but collapsed to $13.64 billion in 1998 as a result to the Asian monetary crisis and ensuing political turbulence here.
The figures are very encouraging, achieving 45 percent of the full-year target (by June) is good enough. The government has targeted FDI approvals for this year at $14 billion similar to what was achieved in 2003.
The right infrastructure is essential to expanding the economy. The government has made the strategic choice by placing investment in the area of infrastructure in high priority. Some 91 investment projects amounting to the incredible sum of US $22.5 billion are on offer. Investors from 22 countries attended the infrastructure Summit in Jakarta in January 2005 to express their interest in the building of toll roads, electricity, water supply, gas-and-oil piping, and airports. The projects are being tendered in stages.
These developments show that the process of the virtuous circle within the Indonesian economy has accelerated since the fourth quarter of last year. This in turn has markedly improved market perceptions of the country's economic outlook and strongly assured investors that economic recovery is increasingly robust with stronger macroeconomic and political stability.
Several new positive developments have greatly contributed to the speeding up of the virtuous circle, which began with the conclusion of what the international community lauded as fair, clean and peaceful legislative and presidential elections last year. First of all, the market reacted positively to the policy direction pursued by the Susilo government and to the good co-ordination between fiscal and monetary policies in controlling inflation and defending the Rupiah stability.
The International Monetary Fund also praised Indonesia's economic performance after an IMF review team completed its latest assessment of the country's economy. The IMF attributed the country's robust economic growth partly to the return of foreign investment.
In an attempt to improve the country's investment climate, the government is finalising the drafting of a new investment bill that would slash the time needed to set up a business from 156 days to only 30, and that would ensure proper co-ordination among ministries. Meanwhile, the government is also vowing to curb corruption and red tape, loosen rigid labour laws, improve tax rates and administration, guarantee legal certainty and work to improve the country's infrastructure.
The president's recent visits to the United States, Japan, China, Australia and ASEAN member countries has given high priority to economic co-operation with an emphasis on investment and trade.
Government has prioritised 32 sectors of some 365 existing industries in the country. The 32 sectors have been contributing 78 percent of the national output and 83 percent of the country's total non-oil and gas exports. The government would expand the market of products from the 32 industries, prioritise foreign direct investment for them, push capacity building of their human resources, direct and organise university research for their benefit, and build the infrastructure for the sectors.
All in all, the economic progress the country has achieved so far can serve as a building block for strengthening market confidence in the government's economic management and in the overall economic outlook -- an upbeat sentiment that can help the economy weather the challenges that lie ahead.