Jakarta – The country's economy will remain resilient next year, although it may grow slightly slower than the government's estimate amid tough challenges on both the external and internal fronts, predicts the Indonesian Chamber of Commerce and Industry (Kadin).
In its year-end economic assessment unveiled Wednesday, the powerful business grouping predicts economic growth of 6.5 percent next year, as compared to the government's target of 6.8 percent.
Kadin said in its report that the global economic slowdown resulting from high oil prices and the US subprime mortgage crisis would affect Indonesia's economy next year, marked by expected declines in domestic consumption and exports, two main drivers of the country's economic engine.
"In the past five years, private consumption has contributed a major part of our economic growth. However, we assume that the increasing level of private consumption has been based on borrowing, which won't last long. Therefore, we predict that in 2008, private consumption won't contribute that much to the economy," Kadin chairman Muhammad S. Hidayat said.
During the first semester of 2007, private consumption contributed 57.4 percent to the economy, a 4.7 percent increase compared to the same period in 2006. Consumption would also be hit by higher inflation as high oil prices pushed up the prices of industrial goods.
On exports, while the assessment predicted these would remain robust next year, growth would slow in line with an expected global economic downturn, not only because of oil prices but also due to the US housing credit woes.
The US, the world's largest consumer, is Indonesia's main export destination. According to the Central Statistics Agency (BPS), total exports up to the end of October rose by more than 13 percent to US$93.26 billion from the same period last year. Total imports between January and October amounted to $60 billion.
Hidayat also said that ideally investment should be the economy's main driving force but it this was not yet supported by a conducive, business-friendly climate. In addition to inconsistency in policies, especially between central and local governments, arduous licensing procedures and illegal levies remained a concern for the business community, said Hidayat.
The government, he said, should simplify its licensing procedures and try to eliminate illegal levies by its officials to improve the country's business climate.
Sofyan Wanandi, head of the Indonesian Employers' Association (Apindo), said that difficulties in obtaining licenses made the cost of doing business expensive. "Such procedures must be changed in order to create a competitive business climate," he said, adding that Indonesia was facing stiff competition from neighboring countries in the region.
For 2007, the report says that overall Indonesia's economy saw positive improvements, but that there were still many shortcomings, such as the gap between the tradable and non-tradable sectors.
The higher growth of the non-tradable, or services, sector than the tradable, or goods, sector would render the latter's development – which usually provides most jobs – less than optimal, the report says, thus doing little to reduce the poverty and jobless rates.
Sector-wise, Kadin's report predicts that the fertilizer, chemicals, rubber and machinery industries will lead the way next year as they did between 2004 and 2007. (adt)