"2011's growth rate was the highest the sector has seen in the past five years."
Jakarta (ANTARA News) - Even as concerns about Indonesia`s trade imbalance mount, given the increase in capital goods and raw material imports, the country`s manufacturing industry is currently experiencing momentous growth, which is expected to restore the trade balance through a swell in exports of manufactured goods.

With the current robust growth of its manufacturing industry, Indonesia has become increasingly attractive to foreign investors who expect Asia, including Indonesia, to recover the fastest from the global economic meltdown.

After registering a slow growth rate in the 2005 to 2009 period, the manufacturing industrial sector has rebounded considerably. In 2011, the non-oil and gas processing industrial sector grew by 6.83 percent, which was higher than the national average of 6.46 percent.

"2011's growth rate was the highest the sector has seen in the past five years," Industry Minister M.S. Hidayat said on Monday.

The industrial sub-sectors of transportation equipment and machinery have also seen immense growth, he added.

"Transportation equipment and machinery industries rose by 8.98 percent, the food, beverage and tobacco industries were up 7.03 percent and the cement and non-metal quarrying goods industry jumped 6.92 percent," Hidayat added.

However the robust growth has been leveled by the expansion of industries, which import capital goods and raw materials for manufacturing purposes, thereby causing a deficit in the country's trade balance.

The monetary, statistics and balance of payment Director of Bank Indonesia (BI) Doddy Zulverdi pointed out that Indonesia`s current account deficit for the second quarter of 2012 has reached US $6.9 billion, or about 3.1 percent of its Gross Domestic Product (GDP).

"A 3.1 percent current account deficit is still below the unfavorable psychological level. But even though it hasn`t touched that critical level yet, it needs to be monitored as it can negatively impact the real estate and banking sectors," Zulverdis said.

Chief Economic Minister Hatta Rajasa pointed out that imports of capital goods have soared given the rising demand from companies, which include airplane and spare parts firms whose imports have jumped 73.7 percent, motor vehicles and spare part businesses whose imports rose 45.3 percent, imports were up 43.3 percent for iron and steel products companies and increased 25.4 percent for companies that sell mechanical appliances.

"An increase in raw material imports can further hurt the balance in trade, if necessary steps are not taken to control them," Rajasa said, adding that the government also needs to improve domestic consumption and government spending in the investment sector.

Rajasa added that he also sees the trend of high imports as temporary in nature, because the Indonesian economy currently needs these capital goods and raw materials for boosting production in its manufacturing sector.

After all, a rapid growth of the manufacturing industry is bound to attract more foreign investors, he added.

"The manufacturing industry is one of the most favored sectors by foreign investors in line with the expected recovery of international trade. This global recovery will benefit Indonesia if it improves its economic conditions," Suryo Bambang, chairman of the Indonesian Chamber of Commerce and Industry (Kadin) said.

He added that potential market possibilities offered by Indonesia`s large population and workforce as raw materials are also among factors that have attracted foreign investors.

"Foreign investors want to do business in Vietnam, but because of the country's banking constraints, they relocate their investment to Indonesia," Bambang said.

He said that Indonesia`s banking system is one of the factors that attract investors. "Other positive aspects include political stability, security and the country`s free market mechanisms."

For instance, the Ministry of Industry expects US investment in Indonesia to reach US $5 billion by 2014. "The United States` investment in Indonesia has touched US $2 billion after the signing of a cooperation agreement between the Celanese Corporation and state-owned oil and gas firm PT Pertamina," Industry Minister M.S. Hidayat said.

The government is also trying to boost its textile industry and for that purpose the Indonesian Ministry of Trade has tied up with the South Korea International Cooperation Agency.

"We need a total budget of US $1.6 million to implement this technical cooperation plan," Sungho Choi, the resident representative of the South Korea International Cooperation Agency said during the signing of the cooperation agreement at Hidayat`s office in Jakarta earlier this month.

Noting the rapid growth of the industrial sector in Indonesia, domestic investors who are part of the Indonesian Businessmen Association (Apindo), said they are convinced that the government will be able to achieve its growth target of 7.1 percent for 2012.

"Industrial growth can touch 7.1 percent if the government remains focused on industrial development in the downstream areas, such as distribution, marketing, etc. The national industrial growth will also attract more investors," Apindo chairman Erwin Aksa said.

He however, pointed out that investors still face constraints during industrial development, which include high bank lending rates and shortage of infrastructure.

"Bank interest rates in Indonesia are relatively higher than those in other ASEAN countries. In addition, poor port facilities and the lack of other infrastructure still hamper industrial growth in Indonesia," Aksa said.

Aksa added that the current law governing land procurement, which is still being deliberated upon by the House of Representatives (DPR), and gas supplies are also a problem. "If the gas supplies are not normalized by the government, it will discourage investors," he said.

Despite these constraints, Hidayat said he is optimistic about the government achieving the 7.1 percent growth rate target for 2012.

He added that he also expects the Indonesian economy to realize its full potential and maintain industrial growth following an improvement in the economic prospects of United States and Japan in 2012.

Indonesian growth will also be fueled by the huge domestic market, which is made up of its 134 million-strong middle class population, Hidayat said.
(T.A014/INE/KR-BSR/F001)

Reporter: by Andi Abdussalam
Editor: Priyambodo RH
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