Workers assemble motorcycles at a production plant of TVS, an Indian motorcycle manufacturer, in Indonesia

Indonesia’s economic growth may have accelerated for the first time in more than a year as lower interest rates and a strife-free election stoked spending.

Economies across Asia are expected to report stronger performances in the third quarter as the region leads the world out of recession. Indonesia has fared better than its neighbors during the worldwide slump as it relies less on exports and consumer confidence has been buoyed by the most stable political climate since the ouster of former dictator Suharto in 1998.

“Market confidence in the current government is high,” said David Sumual, an economist at PT Bank Central Asia in Jakarta. “Political stability is one of the reasons for Indonesia’s steady growth.”

The Jakarta Composite Index has outperformed all other benchmarks in the region this year as investors seek returns in one of the few economies in Southeast Asia to avoid recession. Sumual said Indonesian companies also have confidence in Indonesian President Susilo Bambang Yudhoyono, who began his second five-year term on Oct. 20.

The main Jakarta stock index Monday rose 0.5 percent to close at 2,406.43. The gauge has jumped 77.5 percent this year.

‘Pro-reform technocrats’

President Yudhoyono’s Cabinet includes Vice President Boediono, a former central bank governor, and Finance Minister Sri Mulyani Indrawati, a former executive director at the International Monetary Fund who has held the key economic portfolio since 2005.

“The president’s economy team is filled with pro-reform technocrats,” said James Lord, an economist at Capital Economics Ltd. in London. “There is a good chance Indonesia will deliver on the reforms needed to lift long-run growth to the 7 percent pace the government is aiming to achieve in its new five-year term.”

President Yudhoyono last month said his government would seek to remove “bottlenecks” hindering infrastructure projects including new roads and ports. He also pledged to advance the drive to curb graft in a nation which ranked 126 in Transparency International’s 2008 corruption-perception index.

“Indonesia has made significant structural progress since the 1997-98 crisis, repairing balance sheets, clamping down on corruption and encouraging greater foreign investment,” said Robert Prior-Wandesforde, senior Asia economist at HSBC Holdings Plc in Singapore. “A key test of President Yudhoyono’s second and final term will be the extent to which he can extend the change for good.”

Vietnam, Singapore

Other Asian economies are also performing better in the third quarter than earlier this year.

The Vietnamese economy expanded 5.8 percent in the third quarter from a year earlier, accelerating from 4.5 percent in the previous three months. Singapore’s gross domestic product grew an annualized 14.9 percent last quarter from the previous three months, the second consecutive expansion.

“Asian economies are strengthening and forecasts for the region are moving higher as a result,” said Duncan Wooldridge, chief Asia economist at UBS AG in Hong Kong. “Economies in the region look set to benefit from an upswing in global trade in the second half of 2009 and the first half of 2010.”

Growth in Indonesia’s economy has been supported by rising consumer confidence, which according to a central bank index climbed to a five-year high in July, the month when President Yudhoyono won re-election.

Homes, cars

Lower borrowing costs have also helped increase spending on homes and cars in the $514 billion economy. Bank Indonesia cut its benchmark interest rate nine times between December 2008 and August this year, for a cumulative easing of 300 basis points.

“The sales of houses has increased in the second half compared with a stagnant first half,” said Harun Hajadi, a director of PT Ciputra Surya, a real estate company that has developed housing complexes in Sumatra, Java and Sulawesi island. “Compared with cars, houses are considered big ticket items. But still, we have seen an increase in sales.”

Car sales in Indonesia may reach 550,000 to 600,000 next year from between 460,000 and 475,000 vehicles in 2009, PT Toyota Astra Motor’s marketing director Joko Trisanyoto said in Bandung on Oct. 22.

“Indonesia should enjoy ongoing growth in domestic demand, which helped sustain expansion in 2009,” said David Cohen, an economist at Action Economics in Singapore. “This is likely to be supported by a continued gradual recovery in global export demand.”

Source: Bloomberg