Indonesia has strong growth potential

November 1, 2010

, JAKARTA, Nov 1) – Indonesia, Southeast Asia\’s biggest economy, can achieve strong growth if it reforms its bureaucracy, invests heavily in infrastructure and cuts greenhouse gas emissions, an OECD report said Monday.

The world\’s fourth most populous country weathered the global financial crisis well, and posted the third-highest real GDP growth in the G20 group of the world\’s largest economies, the Organisation for Economic Cooperation and Development said.

Indonesia now has "a unique opportunity to pursue its reform agenda and achieve lasting, strong and inclusive growth," it said.

GDP growth "is projected to accelerate to around 6 percent this year and next," the report added, but warned that "inflation pressures may re-emerge", so that authorities "should thus start to raise" interest rates before the end of 2010.

Echoing recent comments by the IMF, it said Indonesia would only fulfil its potential if it tackled "a number of weaknesses…still holding back progress".

"Changes to the policy and institutional framework will be necessary if Indonesia is to achieve its economic growth objective of 7 to 7.7 percent in 2014," and reach its poverty target of eight to 10 percent it said.

The poverty rate was 13.3 percent in March this year.

It called on President Susilo Bambang Yudhoyono\’s government to launch "a rapid implementation of bureaucratic reforms, to improve both efficiency and governance."

"Phasing out energy subsidies will free up fiscal resources," it added, and said that returns on investment in infrastructure "are likely to be large".

Jakarta should also consider further relaxing barriers to foreign direct investment, the report said.

Foreign direct investment jumped by 32 percent during the first nine months of the year, to 111 trillion rupiah (12.4 billion dollars), including in real estate, mining, telecommunications and agribusiness.

The target of 130 trillion rupiah for the whole of 2010 should be exceeded, the government predicted Sunday.

The OECD said Indonesia also needed to take strong measures against deforestation and to protect its forests, the third-largest in the world after Brazil and the Democratic Republic of Congo.

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