Indonesia's economy grew at the fastest pace in two years in the fourth quarter on rising consumer demand and record exports of agricultural products including rubber and palm oil.
Southeast Asia's largest economy expanded 6.1 percent in the three months ended Dec. 31, after a 5.5 percent gain in the previous quarter, the Central Statistics Bureau said today. That's less than the median 6.2 percent forecast by 22 economists in a Bloomberg News survey.
Economic growth in China and India spurred demand for raw materials from Indonesia, the world's largest exporter of coal used to generate electricity and second-biggest supplier of rubber and palm oil. Indonesian consumers also spent more on motorcycles and other goods, buoyed by a 3 percentage-point cut in borrowing costs last year.
``Indonesia has been helped by high commodity prices,'' Fauzi Ichsan, chief economist at Standard Chartered Plc in Jakarta, said before the announcement. The effect of the reduction in borrowing costs ``was likely to have been felt in the second half of the year,'' he said.
Exports of rubber and related products rose 55 percent to $5.53 billion last year, while overseas sales of edible oils increased 21 percent to $6 billion, according to the statistics agency. Rubber companies pay farmers 85 percent of the export price, said Asril Sutan Amir, vice chairman of the Indonesian Rubber Association.
Taming Inflation
Rubber futures have risen 66 percent since falling to their lowest in 14 months on Nov. 24. Rubber for July 2007 delivery traded at 264 yen ($2.2) per kilogram on the Tokyo Commodity Exchange at 12:48 p.m. Indonesia is the largest exporter of the commodity after Thailand.
Gross domestic product slowed to 5.5 percent last year from 2005, while growth contracted 1.9 percent in the fourth quarter from the previous three months, the statistics agency said. The contraction was slower than in the same period a year earlier.
Bank Indonesia has cut its so-called BI interest rate nine times since May to 9.25 percent. Indonesia more than doubled fuel prices in October 2005, while the central bank raised its key interest rate six times in the five months to December to a three-year high of 12.75 percent to stem inflation.
The reduction in borrowing costs since then helped boost sales of two-wheelers. Motorcycle sales rose 10 percent in the fourth quarter to 1.3 million units, according to the Indonesia Automotive Industries Association.
More Rate Cuts
``Private consumption is picking up,'' said Jasmine Robinson, an economist at Australia & New Zealand Banking Group Ltd. ``Latest data on motorcycle sales show a turnaround in activity and we see that employment should gradually improve and should help support further growth in private consumption.''
Indonesia's per capita income rose 24 percent to $1,633 last year, the statistics agency said.
Bank Indonesia will probably wait until the second quarter to cut its benchmark interest rate further because floods pushed up food prices.
``For this quarter, the reduction is pretty limited,'' Deputy Governor Hartadi Sarwono said yesterday in an interview in Jakarta. ``But of course in the second and third quarters, if everything's going well, the room is still there.''
Inflation may quicken this month because of a surge in the price of rice, the nation's staple food, following floods in Jakarta and monsoon rains that destroyed 35,124 hectares, or more than a quarter, of Indonesia's rice-crop area.
Government Spending
Economic growth also accelerated after the government boosted spending in the final quarter of the year.
``The government tends to accelerate its fiscal disbursal in the last quarter,'' said Standard Chartered's Ichsan.
Government spending rose 1.7 percent in the third quarter from a year earlier, according to the statistics agency.
Government spending may increase as President Susilo Bambang Yudhoyono's government tries to build roads, ports and power plants to boost growth and reduce unemployment.
The government needs to raise $5 billion a year to build infrastructure, the World Bank said in a report on Jan. 11.
source:www.bloomberg.com
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