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Indonesia Posts Good GDP Growth

  • Tim Johnston

Indonesia says that its economy grew by 5.1 percent last year, slightly above expectations. Analysts say that while the underlying figures give some reason for optimism about future growth, there is still much work to be done if the investors who are desperately needed to keep the economy on track are to return.

Indonesia is Southeast Asia's largest economy, but it is an economy beset by problems, the legacy of years of corruption and mismanagement. The 5.1 percent growth in gross domestic product in 2004 is marginally ahead of most expectations, but still short of the 6.5 percent growth that is needed to absorb newcomers into the labor force.

Most of the growth was driven by domestic consumption, but there are some indications long-term investors are slowly returning.

More people are putting money into factories and manufacturing machinery, and although imports have risen by almost a quarter, most of the growth is in capital goods and raw materials.

President Susilo Bambang Yudhoyono, who took office last October, says he wants to see an average of 6.6 percent growth during the next five years. Speaking in Singapore, he set out an ambitious plan.

"My government is adopting what I call the triple-track strategy," he said. "First, to promote growth through export and investment; secondly, to promote employment by stimulating the real [industrial] sector; and thirdly to reduce poverty by promoting agriculture and rural development."

Mr. Yudhoyono's short time in office has been dominated by December's devastating earthquake and tsunami. Although the catastrophe has had relatively little direct effect on the economy, the president's capable handling of the crisis has given investors hope that he will prevail in the battle against the country's deep-seated problems of corruption, legal uncertainty and labor militancy.

Fauzi Ichsan, vice president of global research at the Standard Chartered bank in Jakarta, says there is much work still to be done.

"The government has been doing the right things within its capacity, but unfortunately it requires a lot more to convince investors that the government is serious in the long term," he said.

Indonesia, with a huge population, abundant natural resources and a key geographical position, has the potential to be Southeast Asia's economic powerhouse, and Mr. Yudhoyono says he intends to see that potential fulfilled.

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