ACFTA offers opportunities for Indonesia: WB

The Jakarta Post ,  Jakarta   |  Fri, 04/09/2010 10:08 AM  |  Headlines

The ASEAN-China Free Trade Area (ACFTA) is a gold mine for Indonesia’s long-term growth, says the World Bank’s recently released Indonesian Economics Quarterly report.
“Qualitatively, Indonesia is expected to benefit from increased access to the third-largest consumer market in the world; increased productivity, and efficiency in the domestic [market] resulting from greater competition,” it says.
The sheer size of the ACFTA, which covers a population of almost 2 billion, offers potentially large trade creation benefits for Indonesia, it says, adding that the agreement should also result in reduced prices and greater choices for Indonesian consumers and producers.
Indonesian businesses have strongly opposed the full implementation of the free trade agreement, saying it could result in the closure of many small companies unable to compete with an influx of cheaper Chinese imports.
The World Bank also says Indonesia must build further on this growth momentum such as by protecting the economy from volatility in the global economy, by reducing the exposure of the budget to swings in commodity prices.
Indonesia also needs to invest more resources in public goods and social services, foster a stronger investment climate and more effective bureaucracy, and ensure economic growth leads to improved living standards for all citizens, the World Bank says.
It has raised its forecast for Indonesia’s economic growth to 5.6 percent this year, from the previous 5.4 percent, thanks to signs of recovery during the first quarter of the year.
In his outline, Enrique Blanco Armas, the World Bank’s senior economist for Indonesia, said the outlook for the country’s economy had improved slightly between December 2009 and March 2010.
Indonesia’s economy should expand by upward of 5.6 percent in 2010, he said, with the major drivers of growth expected to continue to come from domestic demand, with imports picking up.
“Moderate price growth should lift households’ real purchasing power,” he said Thursday at the launch of the report.
Armas also predicted investment growth would pick up in 2010 thanks to higher commodity prices and external demand.
He added that with the improvement in the country’s economic outlook, the GDP growth was expected to further grow to 6.2 percent in 2011.
“Developments in the global economy have challenged Indonesia, and the economy has performed well,” said Shubham Chaudhuri, the World Bank’s lead economist for Indonesia.
“Bank Indonesia managed large capital inflows and the government’s stimulus package added perhaps 1 percent to GDP growth in 2009. But risks remain and there are near-term issues to monitor.”