'Domestic consumption robust, will drive growth'

'Domestic consumption robust, will drive growth'

Dadan Wijaksana, The Jakarta Post, Jakarta

As a continued slump in investments and exports seemed
inevitable, the country's economy would still be relying on
domestic consumption as its main driving force at least for
another year, a noted analyst said.

Sri Mulyani Indrawati, an economist at the University of
Indonesia, said Tuesday that domestic consumption would remain
robust, becoming yet again the prime mover of economic growth,
despite a declining trend in consumer confidence.

"Data from BPS (Central Bureau of Statistics) and Bank
Indonesia suggested that consumer confidence has been declining
since the fourth quarter of last year. But on the other hand, a
stronger rupiah makes people -- psychologically speaking -- tend
to buy things.

"So, if the rupiah can be maintained at a level below Rp 9,000
as it is now, this can compensate for the eroding trend in
consumer confidence," Sri told reporters on the sidelines of a
seminar on the economy.

A survey conducted in June by Bank Indonesia, showed that the
Consumer Confidence Index (CCI) was flat in May at 73.5 compared
to 73.4 in April.

The central bank said a number of other indices also failed to
show any significant progress during the month, further
indicating a negative outlook on the economy on the part of
consumers.

As a consequence, consumers were still reluctant to buy
durable goods as indicated in the Consumer Spending Index, which
rose only slightly to 62.8 from 60.5 the previous month.

Increases in the prices of goods and their low purchasing
power were believed to be the main reasons for not purchasing
durable goods.

As the performance in investments and exports have been far
from encouraging, this only raised concerns of an even bleaker
economic outlook as the country is running out of its economic
growth engines.

Approvals for direct investments, both foreign (FDI) and
domestic, during the first five months of the year fell by 59 and
30 percent, respectively, compared to the same period posted in
2001, due mostly to the unfavorable business climate.

As of May, FDI approvals stood at US$ 1.67 billion, far below
$3.98 billion posted during the same period last year.

Approvals for domestic investment during the January to May
period dropped from Rp 12.7 trillion in 2001 to Rp 9.4 trillion
this year.

The country also experienced an almost 10 percent drop in
exports in May compared to the same period the year before.

While admitting that the government made little progress in
improving investment and exports, Sri was convinced that the
country's economy would grow by around 4 percent this year as
targeted on the back of strong consumer spending.

"It's obvious that consumption will remain robust, the
question is, for how long? as long as we can maintain the
stability of the rupiah," Sri added.

Maintaining the stability of the rupiah is crucial as it would
also slow down inflation, meaning a greater chance of Bank
Indonesia lowering its benchmark interest rate.

A slower inflation rate would do little to the people's
purchasing power, while a lower interest rate means it would be
more beneficial for the people to spend their money on durable
goods as a form of investment rather than saving at banks.