ADB sees modest growth for RI this year

The Jakarta Post, Jakarta

While investment has yet to pick up this year due to both internal and external factors, domestic consumption will remain strong as the backbone of the economy, enough to drive growth by 3.7 percent, economists at the Asian Development Bank (ADB) said.

Amanah Abdulkadir, ADB's senior economic officer, said the modest forecast was based on the continuing gloomy outlook of the global economy, coupled with slow progress in improving the investment climate here.

"So, we cannot hope for much from investment (to drive economic growth), especially when we see a decline in the global investment portfolio from time to time. But consumption will remain strong and be able to push the economy to grow by 3.7 percent this year," she said at a media briefing on Wednesday.

She said that one of the signs of strong consumption was the constant increase in imports for capital goods.

This means, she added, that local companies are preparing to increase their output capacity, which will keep consumer spending high.

Sharing her view was David Jay Green, country director for ADB's Indonesia resident mission, who said that there were still plenty of weaknesses that needed to be addressed first if the country wanted to jack up investment.

Green highlighted at least four reasons why investors had been shunning the country: one, concerns about security; two, policy uncertainty, notably on decentralization and labor-related issues; three, weaknesses in the financial sector; and finally, weaknesses in governance, as was evident with the presence of massive corruption.

"All this has resulted in foreign investment in Indonesia was one of the lowest in ASEAN. In fact, the country had experienced disinvestment since the crisis," he said in his paper, quoting data from the ASEAN Secretariat.

As of June 2002, according to the ASEAN Secretariat, the country lost US$1.2 billion of approved foreign investment.

"That's why one of ADB's main programs to assist Indonesia is to support and strengthen a long-term growth prospect through providing investment in infrastructure to help strengthen the country's financial sector and encourage the private sector," Green added.

ADB is an important member of the country's major donors grouped under the Consultative Group on Indonesia (CGI).