FINANCE AND DEVELOPMENT REPORT

INDONESIA: 
ECONOMIC AND FINANCIAL HIGHLIGHTS NOVEMBER 2005

Economic Growth Slows 

The Indonesian economy continued to lose momentum in the third quarter of 2005, according to data from Indonesia’s 
Central Bureau of Statistics (BPS--see Table 1 below).  Real GDP grew by 5.3% YoY down from 5.5% in the second 
quarter.  The pace of expansion in the third quarter was the slowest in a year and reflects a deceleration in exports, 
investment, and household consumption.  Exports of goods and services increased by just 3.4% YoY in volume terms, 
a fraction of the growth rate in the same period a year before, when they grew by 17%.  Third quarter imports rose 
9.3% YoY.  Household spending, which accounts for 63% of total GDP, increased by 4.4% YoY in the third quarter.  

The pace of investment spending growth also slowed in the third quarter to 9.2% from 13.2% in the second quarter.  
BPS also revised its 2Q to 1Q 2005 GDP growth number from 1.01% to 1.36%.    

Indonesian YoY Real GDP Growth

Source: Central Bureau of Statistics

Analysts Reduce 2006 Growth Estimates

Table 2 shows various analyst estimates of full-year 2005 and 2006 GDP growth as of October 2005.  
All analysts expect growth to slow further in the fourth quarter of 2005, mostly because of slowing private 
consumption caused by the October 1, 2005 fuel price increases, higher interest rates and rising inflation.  
Indonesia’s tourism activity was also subdued in 2005 due to avian influenza fears and security concerns, 
including the Bali bombing of October 1, 2005.  Most analysts believe 2006 GDP growth will be slower 
than 2005, with inflation remaining high through the first half of 2006, dampening consumption.  

GDP Growth Estimates (in percentage)

Source: Various reports

November Inflation Reaches 18.4%

On December 1, the Central Bureau of Statistics (BPS) announced that consumer price inflation rose 
by 1.3% month-on-month (MoM), or 18.4% YoY.  A surge in transportation costs (up 44.8% YoY) 
resulting from the October 1 fuel price hikes, as well as rising food prices drove the higher-than-expected 
MoM increase.  CPI inflation is now reportedly at its highest YoY level in six years.  

CPI Components

Source: Central Bureau of Statistics (BPS)

Bank Indonesia (BI) expects double-digit inflation to last until the third quarter of next year. "There is an indication 
that inflation in the fourth quarter of next year will slow down to between 7 and 8%," BI Governor Burhanuddin 
Abdullah said.  He also said that the central bank would continue to carry out proactive measures in 2006 to return 
inflation to single digits.

BI Raises Interest Rates

Bank Indonesia raised its one-month benchmark rate to 12.25% from 11% at its November 1 monthly Board of 
Governors' Meeting.  BI also increased the one-week deposit rate it offers to commercial banks to 10.25% from 9% 
and provided an overnight deposit facility with a 7.25% interest.  In response to the high November inflation 
announcement, Bank Indonesia (BI) raised its 1-month benchmark rate by a further 50 basis points 12.75% 
on December 6.  Bank Indonesia Governor Abdullah also said that the central bank will likely maintain a tight 
monetary policy bias until 2007.  

New Economic Team

President Yudhoyono reshuffled his economic team on December 7 appointing former Finance Minister Boediono 
as Coordinating Minster for the Economy and former National Planning Minister Sri Mulyani Indrawati as the new 
Finance Minister.  Former Chairman of the Commission XI of the Indonesian Parliament Paskah Suzetta became 
the new State Minister for National Development Planning, Fahmi Idris moved from the Ministry of Manpower 
and Transmigration to the Ministry of Industry, and Erman Suparno became the new Minister of Manpower and 
Transmigration. 7. 

At the first limited Cabinet meeting on December 8, Bank Indonesia Governor Burhanuddin Abdullah highlighted 
that BI now projects annual GDP growth for 2005 to be between 5.3 and 5.6%.  New Coordinating Minister for 
Economic Affairs Boediono confirmed that the government would accelerate spending projects in early 2006 
to jump start growth.  His comments followed earlier reports that the government had failed to spend an average 
40% of their 2005 budgets this year.  Boediono also said he was optimistic that the private sector will start to invest 
more in the second half of 2006 when interest rates should be lower.  New Finance Minister Sri Mulyani Indrawati 
said on December 8 that the government will spend between Rp 10 - 15 trillion (USD 1.0 – 1.5 billion) of undisbursed 
government funds from FY 2005 during the first quarter of 2006 to energize the real sector.  “The slowdown in 
the economy needs to be taken seriously.  We will see whether government spending can stimulate higher economic 
growth,” Mulyani said.  She also stressed fiscal prudence and more effective budget allocations, with the aim of 
boosting employment and reducing poverty.  She said six percent growth in 2006 would require investment rising 
by 10-12% and consumer demand growing at above 3.5%.

Selected Economic, Monetary  & Financial Statistics

 Source: Bank Indonesia, BPS

(1)   Rp/USD, end of period

(2)   End of period

(3)   USD billions, end of period

(4)   Jakarta Stock Exchange average daily transaction volume, in billions of shares

(5)   USD billions

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