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.