World Bank says Indonesia poised to weather global economic woes

Oct 4, 2011, 7:51 GMT

Jakarta - Indonesia is in a strong position to weather the current global economic turmoil despite recent turbulence in the country's financial markets, the World Bank said Tuesday.

Global markets are likely to remain volatile in the near term, but Indonesia's solid fiscal position, accumulation of reserves, and strengthened financial sector performance make it relatively well-placed to deal with external shocks, the bank said.

'Like other countries in the region, Indonesia's financial markets are not immune to external events,' said Shubham Chaudhuri, the World Bank's lead economist in Indonesia.

'But while many countries across the world have seen their fiscal and private sector balance sheets weaken markedly since 2008, Indonesia has continued to be a strong economic performer,' he said.

Indonesia's economy grew 6.5 per cent year-on-year in the second quarter, thanks to strong domestic consumption and investment.

Inflation was 4.61 per cent in September, from 4.79 per cent in August.

The World Bank said growth in Southeast Asia's largest economy was projected at 6.4 per cent in 2011 and 6.3 per cent in 2012.

The slightly lower growth projected for next year reflects the downgrade in external demand and moderation in international commodity prices, it said.

The benchmark Jakarta Composite Index fell 5.6 per cent on Monday amid lingering worries about a potential global recession, while the government has been forced to intervene to shore up the sliding rupiah.

'Indonesia's direct trade exposure to the downturn in US and EU markets is relatively limited compared with other countries in the region,' said Stefan Koeberle, World Bank country director for Indonesia.

But capital flows to Indonesia remain exposed to changes in investor sentiment, he said.

'Continued progress on important structural reforms, such as energy subsidy reform and land acquisition, and upgrading the country's infrastructure, can not only help move Indonesia's growth trajectory upwards but can play a valuable role in supporting investor confidence in the near-term,' he added.