ADB cuts RI growth forecast to 3.2%
Moch. M. Kurniawan, The Jakarta Post, Jakarta
Indonesia's predicted economic growth this year has been slashed by about 25 per cent, the Asian Development Bank (ADB) said on Friday.
ADB revised its economic growth forecast for Indonesia this year from the 4.2 percent predicted in April to just 3.2 percent due to a global economic recession deepened by the Sept. 11 terrorist attacks on the U.S.
ADB also cut its 2002 growth forecast from 4.5 percent to 3.9 percent.
"Higher growth will be possible (next year) with significant improvements in political and security conditions," it said in its latest outlook report on Asia.
The government predicted the economy would grow by 3.5 percent this year, and 4 percent next year. The initial government forecast for 2002 was 5 percent. Last year, the economy grew by a hefty 4.8 percent mainly driven by strong export performances and rising oil prices.
Analysts have said that the world economic slump would negatively affect Indonesia's economy as exports fall.
The cut in the economic forecast increases the threat of greater unemployment in the country of more than 200 million people already badly affected by years of economic crisis and political upheaval.
On Thursday, Indonesia's key donors, under the umbrella of the Consultative Group on Indonesia (CGI), pledged some US$3.14 billion in new loans to help finance the 2002 state budget plus $586 million in grants and technical assistance.
The government is scheduled to meet the Paris Club of creditor nations in February next year to seek a rescheduling facility for some Rp 27 trillion (about $2.6 billion) in sovereign debt.
Elsewhere, ADB said inflation this year might hit 11 percent due to a weaker rupiah, accommodative monetary policy, and hikes in administered prices such as fuel and electricity.
For 2002, inflation would stay at 9 percent although it would go beyond an earlier prediction of 6 percent, the Bank said.
ADB said that despite renewed optimism following the election of President Megawati Soekarnoputri late in July, the economy was plagued with new uncertainty due to negative publicity resulting from rising anti-U.S. protest at home in the wake of the U.S.-led attacks on Afghanistan.
The Bank said this would likely further reduce potential investment inflows "and perhaps exacerbate capital flight from the country."
ADB said the government must pursue policies to stabilize the economy and relaunch tough reforms that are needed to stimulate the economy.
The Bank also warned that the government should speed up asset sales and privatization.
"Failure to meet the privatization and asset sales targets will jeopardize recovery prospects and further restrict development investment," ADB said.
On the economic outlook for other countries in the region, ADB said that Singapore, Taiwan, South Korea, and Hong Kong, had seen their economies suffer serious setbacks due to the impact of the world slump.
These countries were expected to undergo an economic contraction in 2001, except for Korea which was forecast to eke out 2 percent growth after expanding by 8.8 percent in 2000.
China's forecast remains unchanged from ADB's April report at 7.3 percent this year, the region's highest growth forecast.