Economy predicted to see modest growth next year

A'an Suryana and Dadan Wijaksana, The Jakarta Post, Jakarta

The country's economic growth rate next year is projected to be only slightly higher as investment and export will remain weak, according to economists.

Danareksa Research Institute Raden Pardede predicted a 4.1 percent growth rate next year, slightly higher than this year's estimate of 3.8 percent.

The government had targeted a 4 percent growth for 2002, but the recent Bali bombing incident which had hit the country's tourism sector forced economists to revise the growth target to around 3.8 percent.

Raden said on Thursday that consumption would continue to become the main driver of economic growth next year.

He said that the 50 percent increase in the salary of millions of teachers in 2003 should help boost domestic consumption.

He said that the population of teachers plus their family members was around 20 million.

He added that the sale of loan assets under the Indonesian Bank Restructuring Agency (IBRA) should help companies to expand their production activities as banks would likely reopen credit lines.

But most economists have said that investors would remain reluctant to put in new investments in the country due to lingering problems such as labor conflicts, security threats, and unfavorable tax policy.

Raden said that the government should act quickly to improve the domestic investment climate as the country could not keep relying on consumption for economic growth.

Meanwhile, Bank Mandiri chief economist Martin Panggabean predicted a relatively flat growth of 3.8 percent for next year.

"The challenge would come from two fronts, the international front and the cautious political mood ahead of the 2004 general election here," said Martin.

He said that the looming war in Iraq could be short lived, which would cause oil prices to decrease.

He said that this would be negative for the Indonesian economy as it depended on oil as its main export revenue.

On the domestic front, the political situation might heat up in the second half of year 2003, which would boost currency volatility and lead to a weakening of the exchange rate of the rupiah against the U.S. dollar.

Despite the challenges, there are some bright patches ahead particularly if the U.S. economy really improves as some have predicted.

He said that if the U.S. economy bounced back it would be an opportunity for Indonesian exporters to expand their market.

He urged both exporters and the government to work together to take advantage of such a possibility.

"In order to do that, the government must increase its intermediary role of the banking sector and produce investment incentives for several sectors, including palm oil and chemicals," he said.

University of Indonesia economist Chatib Basri predicted an economic growth rate of between 3.4 percent and 4.2 percent.

He said that a positive scenario could materialize if the government kept implementing economic reform programs.