Economic recovery will begin in 2000: World Bank<\/p>\n
JAKARTA (JP): The Indonesian economy, currently at its most
\ncritical juncture in over 30 years, will likely make a slight
\nrecovery of 2 percent to 4 percent growth in the year 2000 after
\nan estimated contraction of 10 percent to 15 percent in 1998 and
\n2 percent in 1999, the World Bank predicts.<\/p>\n
The World Bank's 1998 Annual Report on Indonesia, which will
\nbe discussed at the meeting of Indonesia's creditor consortium in
\nParis later next week, puts the country's economic growth in
\nterms of real gross domestic product at 1 percent last year and
\n7.8 percent in 1996.<\/p>\n
The report projects new investment in the economy to decline
\nby 55 percent this year and to grow by 4 percent in 1999 and 6
\npercent in 2000.<\/p>\n
\"Domestic demand has plunged due to a sharp decline in
\ninvestment, the collapse of banks and corporates and dwindling
\nreal incomes,\" the bank points out.<\/p>\n
It says even export growth appears to be slowing as trade
\nfinance becomes increasingly scarce. Exporters cannot maintain
\ndelivery deadlines and export orders are plunging.<\/p>\n
The following is more excerpts from the World Bank's report on
\nIndonesia's macroeconomic outlook which will be tabled at the
\nannual meeting of the Consultative Group on Indonesia in Paris
\nlater next week:<\/p>\n
The destiny of the nation hangs in the balance and direction
\nit takes will depend on chance as well as choice. Chance, because
\nIndonesia's economic future will be shaped by many factors over
\nwhich it has no control-- the pattern and intensity of rainfall,
\ntrends in international oil prices, developments in Japan.<\/p>\n
Choice, because Indonesia has control over many of its own
\npolicies, decisions and actions which together can spell the
\ndifference between success and failure.<\/p>\n
To the virtually limitless potential combination of chance and
\nchoice should be added the stresses and strains being applied to
\nIndonesia's fragile social and political fabric.<\/p>\n
The balance of payments is projected to record a current
\naccount surplus of about 1.8 percent of GDP for fiscal year
\n1998\/1999 and 2.3 percent for 1999\/2000.<\/p>\n
Unlike other economies which have experienced a large real
\ndepreciation in their currency, Indonesia, which has suffered an
\n80 percent fall in the value of its rupiah, is not expected to
\nsee an immediate boom in non-oil exports.<\/p>\n
Exports<\/p>\n
In fact, exports are likely to grow relatively slowly owing to
\nlimited access to trade finance, the depletion of input stocks,
\nlack of buyer confidence and prolonged uncertainty and social
\nunrest.<\/p>\n
Imports are expected to shrink considerably, suppressed by the
\nsevere contraction in domestic demand and a major increase in
\nimport costs. Imports are likely to fall by about 15 percent in
\nFY 1998\/1999 before beginning to expand in 1999\/2000.<\/p>\n
Despite the gloomy near-term outlook, there remain some
\npotential bright spots in the economy that, in combination with
\nfirm, consistent implementation of the reform program, could
\nrekindle growth.<\/p>\n
Agriculture is expected to recover gradually with the fading
\nof El Nino, adding to local incomes and demand and re-energizing
\noff-farm activities.<\/p>\n
This would complement the expansionary fiscal stance which
\nwill inject new purchasing power into the economy reversing a
\nvicious circle of decreased demand and production.<\/p>\n
Export earnings from tree crops could rise significantly and
\nmineral production (copper, coal, gold, tin and nickel) also
\nshows encouraging strength.<\/p>\n
But continued political uncertainty at home could delay the
\nreturn of confidence and flight capital.<\/p>\n
It is therefore most imperative that the government implements
\nspeedily and consistently four major reform agendas:
\nRestructuring the corporate debt overhang, reforming and
\nrestructuring the banking system,improving governance and
\nmaintaining macroeconomic stability through the transition with
\nappropriate and compatible fiscal and monetary policies.<\/p>\n
Over the longer term, attention will also have to be given to
\naddressing other fundamental weaknesses-- the legal system,
\ncompetition policy, corruption, unsustainable patterns of natural
\nresource use and development of social and political
\ninstitutions.<\/p>\n
True, the recovery period could shorten, depending upon the
\nspeed with which political and economic stability returns and the
\nvigor and integrity with which reforms are implemented.<\/p>\n
But the factors impeding a quick recovery are equally strong:
\na mountain of external debt which will still have to be lowered,
\nthe loss of many ethnic Chinese entrepreneurs who left the
\ncountry which will still be felt keenly in the economy.<\/p>\n
Indonesia will need about $13 billion - $14 billion of
\nofficial foreign financing in 1998\/1999 and the financing needs
\nfor 1999\/2000 will need to equal the budget deficit for that year
\nwhich may not be as high as the 8.5 percent estimated for
\n1998\/1999 but will nevertheless be much higher than the past
\nyears.<\/p>\n
Even with additional foreign financing, however, there is no
\nguarantee that the economy will be able to engineer a recovery
\nwith moderating inflation and appreciating exchange rate.<\/p>\n
Continued political uncertainty could precipitate further
\nsocial unrest and impede any incipient return of confidence among
\ndomestic and international investors.<\/p>\n
The fragile social fabric could be torn asunder, making any
\nsubsequent economic recovery a protracted process. (vin)<\/p>",
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