Gov’t Optimistic Industrial Growth Reaches 6.5%

The government is optimistic that the 6.5 percent industry growth target in 2011 can be achieved, despite the global crisis in Europe and the United States. (BLOOMBERG/GRANT TURNER)

JAKARTA (IFT) - The government is optimistic that the 6.5 percent industry growth target in 2011 can be achieved, despite the global crisis in Europe and the United States.

MS Hidayat, Minister of Industry, said the target will not be revised because majority of the national industry is not exported to the United States and Europe. Moreover, the performance of manufacturing industries has not been affected by the global crisis.

In the second quarter of 2011, the accumulative growth of non-oil processing industry and gas reached 6.2 percent, higher than the 2010 growth of 5.09 percent. This is the highest growth for the last five years.

The highest growth achieved by the basic industries are iron and steel by 16.88 percent, followed by the textile industry, leather goods, and footwear by 9.22 percent, and the food industry, beverages, and tobacco by 6.73 percent. Manufacturing of transport equipment, machinery, and equipment also grew 6.58 percent. The paper and printing industry grew 4.04 percent, cement and nonmetallic mineral products grew 5.02 percent, and other goods grew 3.7 percent. The lowest growth is the wood products industry and forest products with 1.23 percent.

This year, the manufacturing industry targets growth of 6.1 percent. But based on the high growth of the first and second quarters, the government is optimistic that growth can reach an average of 6.5 percent until the end of the year.

These targets must be supported by conducive macroeconomic conditions, such as the exchange rate of rupiah against US dollar should be kept at Rp 8800 to Rp 8900 per dollar. On the other hand, the interest rate of Bank Indonesia must also be lowered to 6.5 percent from the current 6.75 percent, to encourage investments in the industrial sector.

Fauzi Ichsan, Managing Director and Senior Economist at Standard Chartered Bank, said the domestic industry should not be targeting new export markets in the parts of Europe, because they are not safe from the debt crisis and still dependent on trading activities with European Union countries.

According to Fauzi, exports to Asian countries have more potential. There will also be shifting of the world’s economy from the western countries to Asia.

Based on a review by Standard Chartered, the industry's most immune to crisis are the automotive industry, tobacco, cement, telecommunications, rental services, pharmaceutical, and packaging. These sectors are growing due to the gross domestic product growth and low global interest rates.

The crude palm oil industrial sector, coal, rubber, and cocoa are also experiencing direct benefits from the rise in global commodity prices. Apparel industry, textiles, shoes, toys, and downstream electronics are categorized as industries which are receding with or without free trade with China.

Unaffected

IFT Research Department assessed Indonesia's exports to Europe and the United States for commodities and energy sectors will remain, because the need is there, despite slower growth.

Nonetheless, Indonesia can further optimize exports in Asian markets, as economic growth in the world is dominated by Asia. Export markets of industrial products can be further developed in China, India, South Korea and Thailand.