Government to unveil upbeat 2005 economic outlook

Dadan Wijaksana, The Jakarta Post/Jakarta

The government is to unveil the draft 2005 state budget on Monday, which outlines an optimistic economic growth outlook of 5.4 percent, defying concerns of a threat to the global economy amid the current surge in oil prices.

The growth target, agreed to by a House of Representatives commission on the budget and the government in June (along with other macroeconomic targets), is higher than those set out by five institutions including the International Monetary Fund and Asian Development Bank. Of these, only Bank Mandiri predicted growth of above 5 percent (see table).

The assessment of Deutsche Bank said that the country's exports would be hurt by possible slower economic pace in the U.S. and Japan, with the soaring oil price -- which has been hovering at record highs of above US$44 not 45? per barrel -- becoming the latest factor.

However, Minister of Finance Boediono has said that the upbeat outlook is realistic enough, as the less robust export showing would likely be compensated for by a return of investment.

"Even if there is a slowdown in the world economy, we expect the 'internal dynamics' would be able to cope with it," Boediono said in reference to improved political, social and economic conditions in the country following trouble-free general elections.

Investment, especially offshore, has been in the doldrums with its contribution to gross domestic product (GDP), which measures economic growth, at a modest level of around 15 percent in the past few years.

Foreign investment used to be the main growth driver before the crisis.

For 2004, the government has penciled in a growth target of 4.8 percent.

Dradjad Wibowo, an economist at Institute for the Development of Economics and Finance (Indef), while agreeing that investment would be of high importance next year amid relatively low exports and flat domestic consumption, said the target would be hard to meet.

"Unless there are drastic measures in which the (next) government could allocate more to pro-growth expenditure, the target is a hard one to achieve," he told The Jakarta Post on Sunday.

"For that, we will need a less conservative, risk-taking economic team in the next government," he added.

The government's pro-growth expenditure -- such as infrastructure development, which has a direct impact on the economy as a whole -- has been severely crippled by its obligation to repay huge public debts, both domestic and foreign.

Nevertheless, even if the economic growth projection is realized, it will still be insufficient to absorb fully the 2.5 million new workers who will enter the job market next year, let alone reduce current open unemployment of 10.5 million.

Elsewhere, President Megawati Soekarnoputri is expected also to reveal other macroeconomic assumptions in next year's budget that include an inflation rate of 5.6 percent (as compared to 6.5 percent this year), a rupiah exchange rate of 8,600 per US dollar (unchanged) and an oil price of $24 per barrel ($22).

RI Economic Growth Outlook ------------------------------------------------------------------

Govt IMF ADB StanChart Deutsche Bank Bank Mandiri ------------------------------------------------------------------ 2004 4.7% 4.8% 4.5% 4.5% 4.7% 4.7% 2005 5.4% 5.0% 4.5% 5.0% 4.5% 5.1% ------------------------------------------------------------------ Source: The Jakarta Post files