Bappenas warns of economic impact of elections

Dadan Wijaksana, The Jakarta Post, Jakarta

Economic growth may slow down this year to 3 percent if the general elections become violent and create instability, the National Development Planning Board (Bappenas) said in a study issued on Friday.

The government's 2004 economic growth target is 4.8 percent. A severe drop in growth would worsen the country's already pressing unemployment problem.

Bappenas said in its Indonesia Economy 2004: Prospect and Policy that the 2004 target was highly achievable, provided that the elections proceeded without incident.

The electoral season kicked off on March 11 with the three- week campaign period for the legislative election, to be followed by the presidential election on July 5 and a possible run-off scheduled for Sept. 20.

Twenty-four parties are vying for the minimum 3 percent required House seats to qualify for the presidential election. The first days of campaigning were relatively peaceful.

There is still a possibility that political tensions might ensue during the remaining campaign period, and the general fear is that even a small discord among political parties could turn for the worse and erupt in violence, thus negating the hard- gained political stability and security.

The study added that the situation could become compounded if a lack of decisiveness prevailed in policies to maintain fiscal and macroeconomic stability. The slowing of the pace of global economic recovery could also contribute to a downturn in growth.

Under such circumstances, the study said, the rupiah could fall to between 9,000 and 10,000 to the dollar, lower than predicted in the 2004 state budget, which has set the average rate at 8,600 to the dollar.

A volatile rupiah would increase inflationary pressures, especially through imported consumer goods, and that the full- year inflation could reach up to 10 percent. Inflation booked 5.06 percent last year, and the state budget targets a 6.5 percent inflation rate.

A 3 percent economic growth would weigh down the government's efforts to resolve chronic unemployment and poverty problems. While a 1 percent growth could absorb some 400,000 new workers, the economy would need to grow by at least 6 percent to absorb an estimated 2.5 million joining the workforce annually.

The study went on to say that, even with the economy expanding by 4.5 percent this year, the country's open unemployment would still increase by 0.7 million people.

Central Statistics Agency data shows the current unemployment rate at 10.8 million, almost the same as Jakarta's population.