Indonesia: Weakening investment

GDP growth slowed in the first quarter of 2009 to 4.4% on year-on-year basis from 5.2% in the previous quarter. A weakening in investment was only partly offset by rising consumption and especially government spending.

Imports contracted faster than exports, delivering positive, although small, trade and external current account surpluses. Inflation is retreating rapidly following a large fall in regulated fuel prices. Activity is projected to gather further steam from mid-year.

The monetary easing cycle is appropriately coming to an end. The liquidity-enhancing measures implemented since the onset of the global crisis appear to be bearing fruit. A fiscal stimulus package was approved by Parliament in February, combining tax breaks for labour-intensive sectors and hikes in budgetary appropriations for infrastructure development projects. The fiscal stimulus is financeable without putting undue pressure on government bond yields. However, public investment continues to be delayed by implementation bottlenecks.

Click here to see all OECD Observer articles on Indonesia

See also www.oecd.org/indonesia

You can order the latest Economic Outlook at www.oecd.org/bookshop

©OECD Observer No 274, July 2009




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