ADB predicts RI economy to grow 3.4% this year
Zakki Hakim, The Jakarta Post, Jakarta
Indonesia's economy is expected to grow a modest 3.4 percent this year and 4 percent in 2004, driven largely by private consumption, the Asian Development Bank (ADB) said in a report released on Monday.
The ADB said that the moderate economic growth in the next two years would also be supported by an improving investment climate and the external environment.
The bank's growth projection is lower than the government's 4 percent target, but still higher than the World Bank's 3.3 percent target. Last year the economy grew by 3.7 percent.
Slower economic growth this year means that the country's unemployment problem will further deteriorate. Analysts have said that to help resolve the unemployment problem, the economy has to grow by between 5 percent and 6 percent.
ADB said that Indonesia's political stability, sound macroeconomic policies and progress of structural reforms strengthened the currency and stock markets, while interest rates and inflation declined.
It said that in 2003 and 2004, financial sector reforms would strengthen the banking system, supporting an increase in gross domestic product.
The bank said inflation is expected to be moderate at 10 percent in 2003 and 8.5 percent in 2004 from 11.9 percent in 2002, as a result of a tight monetary policy.
The ADB report said the state budget deficit was expected to fall to zero by 2004 as a result of continuing fiscal discipline.
In the face of international competition, export growth will be modest, but will maintain the upward trend that begun in 2002 despite strong competition from China and Vietnam.
It said investment spending is expected to start improving, largely for cyclical reasons. A stronger legal and judicial system, lower business costs and improved certainty in the policy environment, especially at the local level, will be needed to sustain higher investment in the long run.
The report also noted that stronger security measures have increased confidence but warns that the regional spread of Severe Acute Respiratory Syndrome (SARS) could have an adverse impact on tourism receipts in the first half of 2003.
Regionally, the SARS epidemic is likely to depress economic growth in developing Asia by 0.1 percent to 0.2 percent in 2003, but the 41 economies that make up the region will still be the world's economic bright spot with aggregate GDP growth of 5.3 percent, the report said.
It said the economic impact of SARS was currently confined to East Asia and Southeast Asia.
Asia is expected to outperform the rest of the world economy including the U.S., Japan and Europe, the report said.
The bank said, the region's growth momentum was expected to carry into 2004, when a stronger world economy was predicted, with the ADB report projecting higher aggregate GDP growth of 5.9 percent for developing Asia.
The main driving forces behind the robust outlook for Asia and the Pacific are an expected strong domestic demand, improving export performance, a supportive policy environment and prudent fiscal and monetary policies.