ADB sees RI economic growth slow in 2002
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.