Wed, 13 Aug 2003

Govt sets higher growth target of 5% next year

The Jakarta Post, Jakarta

The government has set a higher economic growth target of 5 percent for next year under the draft 2004 state budget to be unveiled by President Megawati Soekarnoputri on Friday, Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti said.

"President Megawati will deliver the opening speech for the draft budget and in it, you will see that our next year's target is 5 percent," he told reporters on Tuesday.

Megawati is also expected to present the government's post- International Monetary Fund (IMF) economic reform program at the same time.

Dorodjatun did not give reasons for the rather optimistic projection, in spite of various uncertainties both at home and abroad.

During the initial round of talks with the House of Representatives state budget committee, the government said that in addition to strong domestic consumption, higher exports and investments should help push the economy to grow at a higher rate of between 4 to 5 percent. The government said that an expected recovery in the global economy would help increase exports and investments.

The economy this year is expected to grow at around 4 percent. Some government officials said the increasing stability in the country's macroeconomic indicators, as reflected in the appreciation of the rupiah against the U.S. dollar, benign inflation and a lower Bank Indonesia benchmark interest rate, should strengthen the confidence of investors in making fresh investments here.

But many have also said that the 5 percent growth target for next year was too optimistic, considering that 2004 would be a "risky period" for the economy, as the IMF's current economic bailout program expires later this year and the country holds its first direct general elections in April.

Slow progress in resolving the various problems faced by foreign businesses in the country and renewed terrorist threats may cause investors to temporarily shelve their investment plans.

Indonesia's economy has been growing at a modest rate of between 3 to 4 percent over the past couple of years, mainly driven by strong domestic consumption amid weak investments and exports.

Experts have said that for the economy to be able to generate enough jobs for the millions of people made jobless by the 1997- 1998 economic crisis, the growth rate must be at least 6 percent.

Dorodjatun said that a 6 to 7 percent growth target could be achieved in 2006 or 2007, depending on the pace of the global economic recovery.

"To achieve a 7 percent growth target will not be easy because of the country's huge population, not to mention the impact of the global economic (recession) and security issues at home, which has been lately undermined by a number of terrorist bombings," Dorodjatun was quoted by Antara as saying.

The higher growth rate next year is expected to help the government cut down its budget deficit to around 1 percent of the gross domestic product (GDP) from this year's estimated deficit of 1.8 percent GDP. The government hopes to finance around 70 percent of the deficit through foreign loans.

Assuming that next year's GDP would grow to Rp 2.037 trillion from this year's estimate of Rp 1.940 trillion, the 2004 deficit would be Rp 21.34 trillion, which means the government would need about Rp 15 trillion (US$1.81 billion) in new foreign loans.

Key economic indicators

2003 budget expected 2004 budget*

(target) realization

Growth 4.0 3.5-4.0 4.0-5.0

Inflation 9.0 5.0-6.0 6.0-8.0

Rupiah rate (Rp/US$1) 9,000 8,300-8,800 8,200-9,200

3-month SBI** (%) 13.0 10.0-11.0 9.0-10.0

* Based on initial round of talks with the House ** Bank Indonesia promissory notes