The Indonesian economy has weathered the storm and is currently accelerating. As for the global economy, it is also in a recovery phase and this recovery is expected to continue in 2010. Overall, the prospects for the Indonesian economy in 2010 are brighter than in 2009.

The global economic recession had exerted significant downward pressures on the Indonesia economy. In the first quarter of 2009 the economy grew by 4.4 percent, or significantly lower than in the fourth quarter of 2008 when the economy grew by 5.2 percent and lower than in the third quarter of 2008 when the economy grew by 6.4 percent.

Nevertheless, in light of the global economic recession, the growth rate in the first quarter of 2009 was not too disappointing. In this period, only a handful of countries managed to post positive economic growth. Also, for 2009 as a whole, only several countries are expected to post positive economic growth. These countries include China, India, Vietnam, and Indonesia.

Relatively low exposure to the global economy (note that Indonesia’s ratio of exports to GDP was only around 29.8 percent in 2008) helped prevent the Indonesian economy from falling into a deep recession. The ratio of exports to GDP was much higher in neighboring countries: 103.6 percent in Malaysia, 234.3 percent in Singapore, and 76.4 percent in Thailand. As a result, the global economic recession had less severe ramifications on the Indonesian economy.

In addition, prompt policy responses from both the fiscal and monetary authorities also helped prevent a deep recession. In a bid to spur economic activities, the Indonesian central bank started to cut its benchmark rate (BI rate) in December 2008 by 25 basis points. The bank then cut rates more aggressively in the following months, such that the BI rate currently stands at an historic low of 6.5 percent. At the same time, the fiscal authorities raised expenditures rather aggressively. As a result, the deficit in the planned 2009 state budget rose to around 2.5 percent of GDP.