ADB sees RI economic growth slow in 2002
Berni K. Moestafa, The Jakarta Post, Jakarta
Economic growth in Indonesia is likely to slow, as consumption and investment weaken.
But a U.S.-led rebound in global markets may come soon enough to lend the economy a boost this year, according to the Asian Development Bank (ADB).
The ADB projected that Indonesia's economy, as measured by its gross domestic product (GDP), will grow by 3 percent as compared with 3.3 percent last year. The government in its state budget is targeting a growth rate of 4 percent.
"There will likely be a modest weakening of growth ... because demand falters in the early part of the year before an expected recovery takes hold in the second half," the bank said in its annual report on Indonesia released Tuesday.
ADB deputy director in Indonesia, David Jay Green, estimated that consumer spending to tail off, while low investor confidence would continue hold back private investment this year.
He said that household spending last year rose by 5.9 percent -- the sharpest rise since 1997 -- as consumer confidence returned despite high inflation and political instability.
"It is unlikely that this trend will continue, as spending increased faster than overall income during the second half of the year (2001)," ADB said in its report.
This will leave households with less cash to spend this year, although Green said that spending would rather slow down than simply drop off.
"(Household) consumption continues to be strong, but not as strong as last year," he said, explaining spending would unlikely outpace national income this time around.
Private investment, once among the main engines of the economy prior to the 1997 financial crisis, was down by 1.3 percent in 2001, Green said.
Last year more capital was flown out of this country than was brought in, indicating weak confidence among both foreign and local businesses, he said.
Investor concerns cover Indonesia's pervasive corruption, widespread security threats, and a breakdown of general law and order. "Structural reform is key to ensuring growth potential," Green said.
On the government side, he said that prospects for budget spending to foster growth were dim due to massive debt payments, and low tax revenues.
But Green expressed confidence that Indonesia could still benefit from a recovering U.S. market this year in the form of higher export sales and business investments.
As markets grow more integrated under a globalized economy, he said that the impact of a recovering U.S. economy may be felt faster than before.
"(Business) expectations are giving a rise before the physical impact is seen," he said.
But ADB estimated Indonesia's economy must grow by at least 7 percent to absorb the millions of new job seekers each year,
"Growth in the 7-10 percent range is necessary to reduce poverty in a sustainable fashion," the bank said.
It said that a growth of 3 percent to 4 percent would add to the average income just 1 to 2 percent; "far too little to materially affect the bulk of population that is poor, or near poor."
Green said that the biggest threat for the poor was high inflation.
"The weaknesses of the central bank, a lack of political consensus on the advantages of higher interest rates, and the need to continue to raise energy and utility costs, will mean that inflation will come down only relatively slowly," ADB said.
Bank Indonesia's benchmark rates have been declining steadily despite high inflation rates, which stood at about 3.5 percent in the first three months of 2002.
The government expects an inflation rate of 9 percent from last year's 11.5 percent, while ADB projects a rate of 9.9 percent.