21/11/2011 (Daily Times) - Indonesia’s buoyant export growth is likely to slow into the single digits next year, hurt by the weak global economy, but foreign investment in Southeast Asia’s biggest economy should keep surging, the country’s trade minister said on Friday.

Gita Wirjawan, in an interview with Reuters on the sidelines of a Southeast Asian leaders’ summit in Bali, also said he expected credit rating agencies to upgrade Indonesia to investment grade status by the end of this year.

The G20 member has so far shown few signs of stress from a slowing global economy, though its central bank slashed interest rates to a record low this month in a pre-emptive move because of its concerns exports would ease from the 40 percent growth rate seen in the third quarter.

“I don’t think it is going to be easy to maintain the trajectory,” Wirjawan said of export growth.

“We are not that heavily exposed to Europe in terms of exports but indirectly we are, because we do send goods and services to other countries that would use those goods and services for re-exportation to European economies and the US, so there is indirect impact,” he said.

He said exports would likely expand this year to about $200 billion, up about 30 percent from last year, before slowing into single-digit growth in 2012.

This implies a slowdown in the fourth quarter and would be a much sharper drop for 2012 than the one predicted just a month ago by Wirjawan’s predecessor Mari Pangestu, who saw export growth next year at 10-15 percent, already lower than an earlier forecast of 15-20 percent growth.

The slashed forecasts underline the worries that Southeast Asian nations have on the fallout from the eurozone debt crisis and anemic US growth, even as their trade shifts away from the West towards their neighbours and other emerging markets.

Indonesia is the world’s largest exporter of thermal coal, tin and palm oil, and a leading exporter of coffee, cocoa, rubber and metals such as copper.

Indonesia’s economy is more driven by domestic consumption rather than exports, and so showed resilience to the 2008 financial crisis, leading it to attract a wave of portfolio and direct investment in the past two years.

‘Sexy’ for investment: Wirjawan, who was the country’s investment chief before becoming a minister in a cabinet reshuffle last month, said foreign direct investment (FDI) should keep rising after hitting a likely record this year of more than $23 billion, compared with $17 billion last year.

He expects FDI to grow a further 10-15 percent next year.

“Anybody with money anywhere, if he or she looks at Indonesia, at a glance it has got to look sexy,” Wirjawan, a former investment banker, said as he snapped his fingers.

“Local capital formation has also increased dramatically. These two, FDI and local capital formation, will underpin the strong investment thesis that Indonesia can project to the world,” he said.

He said debt as a proportion of the economy, now at about 24.5 percent, would fall under 20 percent in three years. The falling debt and economic strength have raised the prospect of rating agencies upgrading the country to an investment grade rating that would put it on a par with BRIC nations.

“Feel free to call my bluff but I am hopeful,” he said of his expectations of an upgrade by the year-end. “Look, compared to some of our friends in Europe, I think there ought to be a reversal of credit spreads. I think our risk profile is not being priced right.”

Benchmark bond yields have slid to record lows this year on prospects for an upgrade, with ten-year yields at 6.3 percent, already below equivalent Spanish and Italian yields.

Economists would like see Indonesia raise debt levels a little to spend more on overhauling its poor infrastructure, which creates a structural inflation problem that has led to bouts of investor selling in the past.

Wirjawan stressed that inflationary pressures were manageable for the economy following a surprise 50 basis point cut in the central bank’s benchmark policy rate last week.

“That is a testament to our ability to manage inflationary pressure,” he said. reuters.