As economies around Asia deal with significant drops in exports, thanks to dropping demand from Europe and North America, Indonesia is enjoying some of the fastest economic growth in a decade and a half.
Gross domestic product growth in Indonesia has been “remarkably stable and robust in 2011”, writes Kun Lung Wu, an economist at Credit Suisse. The bank believes that “Indonesia will remain a beacon of growth in a world where growth is scarce”.
Now Indonesia has the highest rate of growth in East Asia. In the region, only China did better. Economic growth in 2011 was 6.5 percent and the World Bank expects the rate of growth to stay at 6.3 percent this year.
Growing international trade and a strong domestic base of 240 million people are powering the country’s economy and helping it to easily outperform its neighbors.
Even as demand for exports from developed economies slows, countries like Indonesia that enjoy a large base of domestic demand “will be in a better position to maintain high growth than the more export-oriented economies”, notes the United Nations in a report on the global economic situation and prospects for the year.
In the last two months, both Fitch and Moody’s raised the rating of the country’s sovereign debt to investment grade, which allows for more foreign direct investment and could lead to the FDI of $20 billion in 2011 to continue growing.
Bank Indonesia has also been the most proactive in the region at spurring domestic demand by cutting interest rates aggressively through to 2011. Unemployment fell to decade lows of 6.8 percent, according to the UN. To limit the impact of slowing exports, the government introduced fiscal stimulus measures in the last quarter of 2011 to boost growth.
Indonesia has a relatively low level of public debt at about 30 percent of GDP, according to the International Monetary Fund. Even better, the debt burden has dropped significantly since 2007 when it was closer to 40 percent.
Even the country’s exports have done well, soaring to $204 billion in 2011, up 29 percent from 2010.
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