Broader-based recovery<\/p>\n
The 5.12 percent economic growth in the third quarter, as
\nreported by Indonesia's Central Bureau of Statistics on
\nWednesday, is thoroughly amazing. This is not only because the
\nexpansion surpassed most analysts' expectations, but the growth,
\npreviously fueled mainly by private consumption, has become
\nbroader based, with exports becoming the main locomotive.<\/p>\n
One may argue that the year-on-year growth only looks
\nimpressive compared to the third quarter of 1999, when the
\neconomy contracted by 1.7 percent. But even on a quarter-on-
\nquarter basis, the July-September growth was still a respectable
\n1.97 percent.<\/p>\n
What makes the third consecutive quarterly growth even more
\nsurprising is that the expansion took place amid heightened
\npolitical uncertainty and stronger opposition to President
\nAbdurrahman Wahid before and during the August Annual Session of
\nthe People's Consultative Assembly and persistent violence in
\nseveral provinces.<\/p>\n
The trend certainly points to a strong pickup in the real
\nsector (manufacturing and agroindustry) even though the weak
\nbanking industry has yet to resume significant lending and a
\nlarge number of businesses remain preoccupied with debt-workout
\nnegotiations.<\/p>\n
But different from the robust real sector, the financial
\nmarket greatly suffered from the political uncertainty and
\nsecurity disturbances in several provinces. The rupiah was driven
\ndown to between 8,700 and Rp 9,000 against the American dollar in
\nthe third quarter from an average of Rp 8,400 in the second
\nquarter. The rupiah's depreciation has forced the central bank to
\nsteadily raise its benchmark interest rate from as low as 11.50
\npercent in June to as high as 13.65 percent in September and
\n13.90 percent today to reign in inflationary pressure caused by
\nthe higher costs of imported goods. The Jakarta Stock Exchange
\ncomposite price index also bore the brunt, falling from 515.11 in
\nJune to as low as 407 in September.<\/p>\n
However, as the bureau noted, the weakening rupiah has been a
\na blessing in disguise for the export sector. As the value of the
\nrupiah is now still more than 70 percent lower in terms of
\nAmerican dollars, compared to its rate at the outset of the
\nfinancial crisis in late 1997, Indonesian manufactured goods are
\nmuch more competitive on the international market. Export indeed
\nbecame the engine of growth in the third quarter, expanding 4.54
\npercent from the second quarter, while private consumption grew a
\nmere 0.80 percent and government consumption even contracted 5.75
\npercent.<\/p>\n
Exports could actually be increased further if many debtor
\ncompanies which have been denied access to new credit lines could
\nobtain working capital in the form of loans to raise capacity
\nutilization. But newly recapitalized banks, still traumatized by
\nmountains of bad credits and being overzealous to maintain their
\ncapital standards, have shunned debtors who have not reached debt
\nsolutions with the Indonesian Bank Restructuring Agency even
\nthough they could show firm import contracts from overseas buyers
\nto prove their creditworthiness.<\/p>\n
But again the basic question is whether the recovery will be
\nsustainable without significant growth in new investment to
\nexpand the production capacity and improve manufacturing
\ntechnology in order to increase the value of industrial goods.
\nThe bureau's report shows that fixed gross capital formation in
\nthe third quarter still contracted 0.92, compared to a 2.64
\nexpansion in the second quarter. That means investors remain on
\nthe sidelines, spooked by the unusually high risk of doing
\nbusiness in the country.<\/p>\n
Hence, while the numbers for economic growth should generate a
\nsense of confidence, concerted efforts are still needed to
\nresolve the huge corporate debt overhang and improve political
\nand legal certainty in order to reduce to a reasonable level the
\neconomic and political risks of doing business here.<\/p>\n
As long as these risks remain unusually high, the financial
\nmarket will continue to be highly volatile, a condition inimical
\nto the corporate debt restructuring process and recovery of the
\nnewly recapitalized banking industry, as well as damaging to the
\nnascent economic recovery process.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/broader-based-recovery-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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