Econit sees slower economic growth

Econit sees slower economic growth

Rendi A. Witular, The Jakarta Post, Jakarta

The country's economic growth will slow down to about 3 percent
next year due to a lack of progress in reviving investment and
pushing exports, private think tank Econit said in its year-end
economic review.

Econit managing director Hendri Saparini also said that
domestic consumption, which has been the main driver of growth
this year, would likely slow in 2003.

"Three percent growth for 2003 will be just adequate amid the
unfavorable conditions and the lack of economic stimulus to move
the economy," Hendri said during a press conference.

She added that rising political tension next year, in the run-
up to the 2004 general election, would further make the job of
pushing exports and investment more difficult as businesses would
tend to remain on the sidelines.

The government is targeting 3.8 percent economic growth this
year, and has projected 4 percent growth next year on the back of
continuing strong domestic consumption and improvement in exports
and investment.

But even at this growth level, many people who lost their jobs
during the late-1990s economic crisis would remain out of work.
Experts have said the country needs to post economic growth of
about 6 percent or 7 percent to absorb the millions of unemployed
people.

Econit said there were signs domestic consumption was starting
to weaken, as indicated in slowing motorcycle sales.

The think tank pointed out that motorcycle sales during the
third quarter of 2002 grew by only 49 percent, compared to 77
percent and 82 percent respectively in the same period in 2000
and 2001.

Motorcycle sales are seen as one indicator of domestic
consumption levels.

Econit said the slowing pace of domestic consumption was a
result of the waning purchasing power of the people due to the
slow progress of the country's economic recovery.

On the investment front, the outlook remains cloudy as the
government of President Megawati Soekarnoputri has failed to
create a conducive investment climate at home amid lingering
labor conflicts, security problems in several regions, corruption
and poor implementation of the regional autonomy law, according
to the think tank.

Foreign direct investment fell by 11 percent to US$5.4 billion
in January-September of this year from $6.08 billion in the same
period in 2001.

The same problems are also hurting the country's exports.

Export revenue declined by 2.8 percent to $42.5 billion in the
January-September period of this year from the same period last
year.

Security problems and labor conflicts have prompted foreign
buyers to seek for other suppliers in the region.

Hendri said that with problems in the country's economic
fundamentals, the current strengthening of the rupiah against the
US dollar was unlikely to continue.

She said the stability of the rupiah was not a result of the
government's economic policy, but was mainly caused by external
factors like the general weakening of the U.S. dollar against
regional currencies.

She added that the disbursement of an International Monetary
Fund loan tranche to the country also contributed to the recent
strengthening of the rupiah.

"It's a pity that the government could not take advantage of
the positive momentum created by the appreciation of the rupiah
to push exports," Hendri said.