Indonesia
Briefing Notes for the Launch in Jakarta, March 2008
Economic growth
- Indonesia's economic growth rate increased from 5.5% in 2006 to 6.2% in 2007
- Both private consumption and gross fixed investment grew faster in 2007 than in 2006
- Private consumption’s growth rate rose from 3.2% in 2006 to 5.0% in 2007
- Investment tripled its growth rate from 2.9% in 2006 to 8.9% in 2007
- In contrast, government consumption decreased its growth rate from 9.7% in 2006 to 5.6% in 2007
- Overall, the growth rate of domestic demand increased from 3.7% in 2006 to 5.1% in 2007
- The strong performance of domestic demand more than compensated for a small drop in the rate of growth of exports, from 9.2% in 2006 to 8.7% in 2007
- GDP growth is forecast to remain steady at 6.2% in 2008
Inflation and monetary policy developments
- Inflation decreased substantially, from 13.1% in 2006 to 6.4% in 2007
- The two CPI items that increased the most in 2007 were foodstuffs (11.4%) and education, recreation, and sports (8.7%)
- As inflation lowered, Bank Indonesia cut its benchmark BI interest rate on seven occasions, from 9.75% at the beginning of the year to 8% at the end of the year
- However, the annual inflation rate increased in January of 2008 to 7.36%, the highest since September of 2006, due to increases in oil and rice prices
- The Board of Governors of the Bank of Indonesia did not change the BI rate in its first two meeting of 2008, arguing that the risk of higher inflation due to higher oil and food commodity prices was balanced by the potential adverse effect on Indonesian exports of a U.S. recession
- The inflation target for 2008 is 5% ± 1%
Exchange rates and foreign exchange reserves
- The rupiah was the only major South East Asian currency that depreciated against the dollar during 2007
- The exchange rate depreciated from an average of 9,080 Rp/USD in January of 2007 to an average of 9,450 Rp/USD in December of 2007
- However, the rupiah appreciated in early 2008 to an average of 9,200 Rp/USD in February of that year
- Foreign exchange reserves increased by almost a third between January and December of 2007, from US$ 43.3 billion to US$ 56.9 billion.
External sector
- The current account surplus increased by US$ 1.5 billion, from US $9.9 billion in 2006 to US$ 11.5 billion in 2007
- The goods trade surplus increased by US$ 4 billion, more than compensating for increased deficits in services trade (US$ 0.9 billion) and the income account (US$ 1.6 billion)
- Indonesia’s terms of trade increased by 3.4% compared to the previous year, due to higher prices of oil and gas and of agricultural commodities such as coal, cocoa, and palm oil
- The improvement in the terms of trade explain almost all the improvement in the trade balance
- Inward direct investment increased by US$ 0.5 billion, from US$ 5.6 billion in 2006 to US$ 6.1 billion in 2007
- Indonesia’s external debt increased by US$ 7.5 billion, from US$ 131.0 billion in 2006 to US$ 138.5 billion in 2007
- In August 2007 Indonesia signed a bilateral free trade agreement with Japan which includes provisions for energy security as well as the removal of tariffs on about 92 percent of the value of bilateral trade
