Govt expects higher growth

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 *
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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
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* preliminary assumption
Source: Ministry of Finance