GDP growth to remain low for 2-3 years: Economists

GDP growth to remain low for 2-3 years: Economists

Leony Aurora, The Jakarta Post, Jakarta

Indonesia has been trapped in low economic growth rates for seven
years and is likely to stay there in the next two to three years
because of continued lack of investment, analysts said.

Speaking in a discussion on the political and economic outlook
for 2004 on Tuesday, economist Faisal Basri said that the annual
Gross Domestic Product (GDP) growth had stayed at an average rate
of less than 4 percent over the past few years.

After the initial hit of the 1997 financial crisis, GDP growth
plummeted to minus 13.2 percent in 1998. Although the figure
bounced to a little above zero the following year, it remained
low and last year's was estimated at 3.9 percent.

"Consumption had been the only driving factor for growth
(during the past years)," said Faisal. "The upcoming elections
will bring higher consumption, with parties spending money for
campaigning," he added.

But investment, a key ingredient to achieve higher and
sustainable growth, remains low due to various uncertainties at
home and overseas.

The Investment Coordinating Board (BKPM) reported that the
approved FDI in 2003 was US$13.21 billion, a jump from 2002's
figure of $9.79 billion. Unfortunately most of it came from
expansion of existing projects and changes in status of firms
from local to foreign and only $5 billion worth of projects was
completely new.

Of the approved FDI, $4.97 billion was realized.

An economist from the University of Indonesia, Muhammad Chatib
Basri, pointed out that investors would not come this year due to
the protracted six-month general election period.

"Old investors will stay because they are already used to the
situation here, but new ones will wait," he said.

About 145 million voters will elect their representatives in
April and their president in July. If none of the presidential
candidates achieve more than 50 percent of the vote, another
round is set in September.

"After observing the performance of the elected government for
six months or more, new investments may come in the second
semester of 2005," said Chatib. "Its effects will be felt in
2007."

Meanwhile, domestic investment rose by 92 percent to Rp 48.48
trillion last year as compared to 2002, BKPM said.

Despite aggressive efforts by Bank Indonesia to cut its
benchmark interest rate, banks remain reluctant to boost lending
to the corporate sector amid remaining high uncertainty in the
sector.

Loan to deposit ratio of the country's banking industry stood
at 52 percent in August last year.

The central bank's benchmark interest rate has gone down to
around 8.06 percent from over 13 percent earlier last year. But
the lending rate remained stubbornly high at around 17 percent
earlier in January this year.

But Chatib said that the lack of bank financing availability
was also due to funding mismatch problems in the industry as
people still doubt local banks as reflected by the fact that 60
percent of time deposits were short-term one-month deposits.

"How can long-term loans be funded by short-term funds?" he
said.

The government is targeting an economic growth of 4.8 percent
this year, while most private think-tanks forecast a GDP growth
of around 4.4 percent.

The economy has to grow by around 6 percent to 7 percent per
year in order to absorb the millions of unemployed.