Indonesia’s government appears to be on the right track, as things are looking good for the economy and related exchange traded fund (ETF) as a result of a combination of strong consumption and sound fiscal policy.
Some points in favor of Indonesia’s economy include:
- World Bank representative Joachim von Amsberg thinks Indonesia could see 7% growth once President Susilo Bambang Yudhoyono doubles spending on roads and power to $140 billion by 2014, which will also bring 33 million out of poverty, reports Achmad Sukarsono for Bloomberg.
- Indonesia does not rely too heavily on exports and the declining interest rates have helped boost consumption, which is around 60% of GDP.
- The economy expanded 4.4% in the 1st quarter year-over-year.
- The Central Bank cut its benchmark interest rate by 2.75% since December.
- The government has put $7.6 billion in stimulus plans to finance infrastructure projects and the money should help ease unemployment, which stands at 8.1%.
The International Monetary Fund (IMF) says investor sentiment toward the country has improved, but warns of another round of global risk aversion to developing markets, which could affect external liquidity, demand and growth prospects for Indonesia, according to China Views. The organization expects the economy to grow 3.5% this year and 4.5% in the next while the government projects a 4.5% expansion this year and 5.5% for the next. Exports could drop 0.9% this year and 0.5% next year.
The IMF urges the Indonesian government to maintain some stimulus in 2010, since there is room for a higher fiscal deficit, wrotes Lesley Wroughton for Reuters. Indonesia’s exchange rate is “broadly in line with fundamentals” and reserves are at adequate levels. However, the IMF advises that the country should strengthen its tax system and lower energy subsidies so that there will be more fiscal space for infrastructure and social spending.
- Market Vectors Indonesia ETF (IDX): up 19.3% in the last month
For more information on Indonesia, visit our Indonesia category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.