Mon, 23 Sep 2002

ADB revises upward RI's 2002 GDP growth estimate

A'an Suryana, The Jakarta Post, Jakarta

The Asian Development Bank (ADB) has revised upward its 2002 economic growth prediction for Indonesia from an earlier 3 percent to 3.2 percent.

The higher prediction was based on an expected recovery in exports, particularly on the back of higher oil prices.

The ADB said that consumption demand would be sustained, although at a lower rate than in 2001, and the agricultural sector would also perform well during the rest of this year.

The bank said in the "Asian Development Outlook 2002 Update" report that gross domestic product (GDP) growth for 2003 was projected at 4.4 percent.

ADB did not give its prediction for the oil price, but the optimistic projection seems possible amid the growing tension in the Middle East.

Due to fears of a U.S.-led attack on Iraq, oil hit US$30 a barrel for the first time in 18 months in August.

The higher oil price would benefit oil exporting countries like Indonesia.

With the increasing price of oil, Indonesian exports from the oil sector could increase as well, which could ease pressure on the state budget.

The government has targeted the economy to grow by 4 percent this year, and by about 5 percent next year. This year's growth is expected to be mainly driven by strong domestic consumption, while a stronger export performance next year is expected to help push economic growth higher.

The higher economic growth is crucial to help absorb the huge unemployment in the country, which according to one estimate has reached around 40 million out of the total labor force of around 100 million people.

But independent economists have warned that the 5 percent growth projection was rather too optimistic given fragile economic conditions in the U.S. and Japan, Indonesia's major export markets.

A host of problems at home, such as security concerns, legal uncertainty and lingering labor conflicts are discouraging investors from making new investments here. During the first half of this year, for example, foreign direct investment (FDI) approval declined by around 42 percent compared to the same period last year. Domestic investment approvals had also plunged.

Minister of Industry and Trade Rini MS Soewandi said previously that higher prices for agricultural commodities were expected to improve the country's export performance.

A report in this paper last week said that the price of cacao hit a 13-year high of about Rp 17,000 per kilogram amid fears of lower output from the world's largest producer, the Ivory Coast, and rising global demand.

Indonesia is currently the world's third largest producer of cacao with an output this year expected to reach 400,000 tons.

The price of crude palm oil (CPO) has also beein on a rising trend. Indonesia along with Malaysia are among of the world's top CPO exporters.