Growth target in 2003 budget seen as too optimistic

Growth target in 2003 budget seen as too optimistic

The Jakarta Post, Jakarta

Economists said the government was being too optimistic with its
economic growth target of 5 percent for next year, as stated in
its 2003 state budget draft, as they argued that the future
course of the global economy remained uncertain.

In the draft, unveiled by President Megawati Soekarnoputri on
Friday, the government hoped that gross domestic product (GDP)
would grow by 5 percent, compared to an estimated 4 percent this
year, on the back of expected improvement in exports and
investments resulting from a strong global economic recovery.

However, critics said they did not expect a quick recovery in
the world economy particularly because the major economic powers,
particularly the U.S. and Japan, were still struggling to recover
from the current doldrums.

Achieving higher economic growth is crucial to helping resolve
various problems in the country particularly the huge
unemployment problem, which according to one estimate has reached
more than 40 million and could potentially trigger widespread
social unrest.

The 5 percent economic growth target is also the basis for
achieving other targets in the 2003 state budget such as a higher
tax revenue and lower deficit.

Gadjah Mada University economist Sri Adingsih said even if the
global economy did grow stronger next year, Indonesia would not
likely benefit from it, as various problems at home -- such as a
poor investment climate -- had yet to be addressed.

"I am worried that investments and exports will not recover in
2003, as the government has not been serious in improving the
business climate.

"There are also problems with exports, especially since we're
facing tougher competition from other countries, mainly China,"
Sri told The Jakarta Post over the weekend.

An improved showing in exports and investment would be
beneficial in pushing economic growth, which has been relying
heavily on strong domestic consumption for the past two years.

During the first semester of this year, exports fell by 6.73
percent to US$27.38 billion from the same period last year, while
foreign direct investment (FDI) approvals dropped by at least 42
percent to $2.5 billion.

With the outlook remaining gloomy, Sri said the five percent
growth was unrealistic. "My prediction for next year is that the
economy will only grow by 4 percent."

University of Indonesia economist M. Chatib Basri said
although exports could be higher next year, it would not be
significant enough to push economic growth to reach the 5 percent
level.

"Exports only contribute 20 percent to (economic) growth," he
said, adding that next year's growth would still largely depend
on domestic consumption.

Anton Gunawan, an economist at Citibank, was also of the
opinion that the economic growth next year would be less than 5
percent.

"I think achieving 5 percent growth would be rather hard. A
4.5 percent growth would be my most optimistic prediction under
the current circumstances," Anton told the Post.

Other macro economic assumptions in the 2003 state budget
draft are: a rupiah exchange rate of Rp 8,700 per U.S. dollar, an
inflation rate of 8 percent and Bank Indonesia interest rates
(SBI) of 13 percent.

Meanwhile, the International Monetary Fund praised the state
budget draft.

"It's a sound budget which should help reinforce macroeconomic
stability," David Nellor, IMF's representatives in the country,
was quoted by Dow Jones as saying, adding that efforts to reduce
fuel subsidies to rein in the deficit were encouraging.

"It shows a lot of effort to bring about a more stable fiscal
environment," he added.

The government is targeting a deficit of 1.3 percent of GDP
next year.

To achieve the target, the government has proposed a cut in
expensive subsidies on fuel, electricity and others by 39 percent
to Rp 25.3 trillion.

The government is also planning to increase tax collection by
18.7 percent to Rp 260.8 trillion.