Faltering confidence<\/p>\n
The higher-than-expected 4.8 percent economic growth Indonesia
\nposted in 2000 has apparently failed to increase market
\nconfidence or raise expectations of a stronger recovery. Instead,
\nlast year's economic spurt, from zero growth in 1999 and a
\ncontraction of almost 14 percent at the peak of the country's
\neconomic crisis in 1998, is expected to cool off this year as a
\nresult of external and internal factors.<\/p>\n
The World Bank's latest report on Indonesia estimates economic
\ngrowth this year at 4 percent. This is a base-case scenario,
\nassuming that macroeconomic stability is maintained and
\nstructural reforms implemented slowly, with frequent slippages
\nand some policy reversals. The International Monetary Fund
\nbelieves the best the country can expect is for economic growth
\nto remain flat.<\/p>\n
Bank Indonesia has ventured a more optimistic projection of
\n4.5 percent to 5 percent expansion, but it used economic
\nassumptions that appear to be overly ambitious.<\/p>\n
Most private sector analysts are less upbeat, estimating
\ngrowth at between 3.5 percent and 4 percent. They cite fears that
\nthe country's political uncertainty will continue and export
\ngrowth will slacken to 8 percent from 18 percent last year due to
\nthe economic slowdowns in the United States and Japan, which
\ntogether account for more than 32 percent of Indonesia's non-oil
\nexports.<\/p>\n
The optimists -- foremost among them government economists --
\npredictably contend economic expansion will become more robust as
\neconomic activities manage to disengage themselves from the
\npolitical situation, as they did last year.<\/p>\n
But key economic data from the last few months has shown the
\nominous signs of a weakening pace of recovery. Despite the marked
\ngrowth of 4.8 percent for the whole year, the economy actually
\nshrank 0.7 percent in the fourth quarter of last year from the
\nprevious quarter. Non-oil exports, one of the three main engines
\nof growth last year, fell 10.4 percent in January from December
\ndue to a harder-than-expected landing for the U.S. economy. Oil
\nprices \"boomed\" in the first 10 months of last year before
\nbeginning to decline in the last quarter, and they are expected
\nto continue their downward trend throughout this year.<\/p>\n
The other two economic engines -- private consumption and
\ninvestment -- do not show great promise, either. This is the
\nresult of inimical domestic factors, notably the political
\nuncertainty and the weakened leadership of the embattled
\nPresident Abdurrahman Wahid, which have in turn affected the
\nimplementation of reform measures and economic management as a
\nwhole.<\/p>\n
Although the central bank continues to expect private
\nconsumption to rise by between 3 percent and 5 percent this year
\nas a result of last year's estimated 16 percent increase in per
\ncapita income, that by itself will not be able to offset the
\ndecline in exports.<\/p>\n
With rising political tension, a shrinking current account
\nsurplus due to faltering export growth, rising debt servicing
\ncommitments and a vulnerable rupiah, the central bank seems to
\nhave no other option but maintain a relatively tight monetary
\nstance.<\/p>\n
The problem, though, is that if the central bank keeps its
\nbenchmark interest rate at almost 15 percent, where it has been
\nover the last few months, many banks that were recapitalized with
\nfixed-rate government bonds will continue to lose money, because
\nthey will have to offer deposit rates higher than the 12 percent
\nreturns on the bonds to remain competitive with other banks.<\/p>\n
The third economic engine -- investment -- has an even
\nbleaker outlook, due mainly to the political uncertainty, the
\nlegal limbo regarding the huge pool of assets managed by the
\nIndonesian Bank Restructuring Agency and the shaky transition
\nfrom centralization to regional autonomy.<\/p>\n
All in all, the outlook is not comforting. The economy will
\nmost likely muddle through the multidimensional crisis in which
\nthe nation has been mired since 1998. It is hard to believe the
\noptimists' view that the economy will continue to grow robustly,
\nisolated from the increased political turbulence.<\/p>\n
Even if President Abdurrahman weathers the attacks of the
\nemboldened opposition, he will emerge as a much weaker head of
\ngovernment who will have to make many compromises at the expense
\nof prudent macroeconomic management.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/faltering-confidence-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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