Govt expects higher growth
Dadan Wijaksana, The Jakarta Post, Jakarta
Minister of Finance Boediono projected higher economic growth for next year on the back of improvements in investment and exports, provided the upcoming 2004 legislative elections runs smoothly.
Boediono, speaking during preliminary discussions of the draft 2004 state budget in front of the House of Representative's budget commission, said the economy would grow between 4 percent to 5 percent next year.
"If the 2004 election goes well ... I think by the second semester of the year, foreign investment will return," he said.
This target is higher than projections made by the World Bank and Asian Development Bank who predicted 4 percent growth.
The two multilateral lenders also disagree with the government's 2003 growth target of 4 percent, saying the economy would only expand by 3.3 percent to 3.4 percent, down from 3.7 percent last year, thus worsening the unemployment situation.
Boediono conceded that even with 4 percent to 5 percent growth in 2004, it would not be able to resolve the severe unemployment problems. He said that the government had to be realistic in setting economic targets.
The country's economy contracted by more than 13 percent in 1998 following the regional economic crisis. Since the crisis, the economy has only managed to grow at a meager rate of around 3 percent per year.
Analysts have said that to resolve unemployment problems, the economy must grow at a pre-crisis rate of around 6 percent.
Boediono said global economic conditions were expected to improve next year, thus providing opportunities for the country to increase exports and lure more investment.
Over the years, investment has been hard to come by because of internal and external factors, contributing little to the overall economic growth, which has been mainly relying on strong domestic consumption.
The current global economic slowdown, exacerbated by the recent Iraq war and the outbreak of Severe Acute Respiratory Syndrome (SARS), has shattered investors' confidence worldwide, putting a lid on their appetites to invest in emerging markets, such as Indonesia.
On top of that, however, it is the adverse investment climate here, partly due to security concerns and rampant corruption, that have discouraged the flow of capital into the country.
Security will be more of a concern when the election process begins next year. Traditionally, tensions rise whenever elections takes place due to increased political friction.
However, Boediono remained optimistic on the prospects for the economy, despite the various uncertainties.
"Even under the current conditions, take exports for example, some of our commodities are enjoying good bargains, in terms of the prices.
"Oil is an obvious example, and so are some agricultural and mining products. So, there is no need to be pessimistic. Our economy will be better in 2004 as investment and exports improve," he said.
The state budget deficit for 2004 was earmarked at 1 percent of gross domestic product, lower than this year's target of 1.8 percent.
But Boediono did not provide specific details on how to plug the deficit considering that the country may no longer be able to obtain debt rescheduling facilities from the Paris Club next year if the existing International Monetary Fund (IMF) program is terminated later this year as scheduled.
He said the government would optimize potential revenue from both domestic sources, including divestment and privatization, and foreign ones, which included seeking further soft-term loans from the Consultative Group on Indonesia (CGI) and debt-swaps with other creditor nations.
Govt economic targets
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2003 2004 * ----------------------------------------------------------- Inflation (%) 9 7 - 8 Rupiah per US$ 9,000 8,500 - 9,500 GDP growth (%) 4 4 - 5 Oil Price (US$/barrel) 22 17 - 20 Oil Output (bpd) 1.27m 1.1m - 1.5m SBI (%) 13 10.5 - 11.5 Deficit (% of GDP) 1.8 1 ----------------------------------------------------------- * preliminary assumption Source: Ministry of Finance