Erwida Maulia, Jakarta – The Indonesian government has only a slim chance of meeting its higher gross domestic product (GDP) growth target next year if no measures are taken to address distribution bottlenecks, the central bank warns.
Bank Indonesia Governor Darmin Nasution said Wednesday that distribution bottlenecks would remain a major obstacle to further economic growth because the existing infrastructure was already operating at nearly full capacity. He said that only a breakthrough in infrastructure development could lead to further economic growth.
"We note that [Indonesia's current infrastructure] is operating almost at full capacity, so it's not easy to improve existing growth. This is not just about the industrial sector, but about infrastructure in particular," Darmin said Wednesday after meeting with lawmakers to discuss preparations to draft the 2012 state budget.
This situation means that even an increase in investments in Indonesia would not likely do much to improve GDP growth, Darmin said. He recommended the government make a breakthrough in infrastructure development to prevent Indonesia's growth from being stunted.
"If we make a breakthrough, namely through improving strategic infrastructure, for example by improving access to Tanjung Priok [sea port], we can still [boost growth]," Darmin said.
The government forecast the economy to grow by between 6.5 and 6.9 percent in its 2012 macroeconomic assumptions submitted to the House of Representatives.
The government has also increased this year's economic growth target to 6.5 percent from 6.4 percent set earlier in the 2011 state budget amid a surge in direct invest- ment. Last year, the economy expanded 6.1 percent. In the first quarter of 2011, the economy grew by 6.5 percent.
"We tend to see that the growth range of between 6.5 and 6.9 percent remains too high. We tend to [project] a lower figure, although of course this will depend on possible strategic agreements," Darmin said at a hearing with the House budgetary body on Wednesday.
He attributed the lower growth projection partly to lower capital inflows expected for next year, led by macroeconomic improvements in the developed world.
"Next year, as [developed nations] are expected to enjoy better economic growth, we expect capital inflows won't be as high as this year, which will impact exchange rates and other areas," he said.
Despite forecasting lower capital inflows, Darmin expects a stronger rupiah against the US dollar in 2012, saying the rupiah could stand between Rp 8,600 and Rp 9,100 to a dollar – higher than the government's estimate of between Rp 9,000 and Rp 9,300 a dollar.
High inflation remains a challenge next year. The government is not likely meet its projected inflation rate estimate for 2012 unless it increased fuel prices this year, he said. The government projected inflation to fall to between 3.5 and 5.5 percent in 2012 from between 5 and 6 percent this year.
Measures by the government such as raising the price of subsidized fuel or limiting the sale of subsidized fuel only to public vehicle operators this year, would not affect the 2012 inflation target, Darmin said.