Growth target of 5% far too optimistic: Economists

Growth target of 5% far too optimistic: Economists

The Jakarta Post, Jakarta

Economists challenged the government's growth target of 5 percent
for 2004, calling it too optimistic, especially as next year
there will be general elections and the economy will no longer be
getting IMF economic assistance.

Fauzi Ichsan, StanChart economist, told The Jakarta Post on
Wednesday that the economy would probably grow at a lower range
of between 4 percent and 4.5 percent next year.

"For the economy just to grow in the 4 percent range, it will
require a great leap in real investment, which means we need some
rapid improvement in our investment climate also, something that
is unlikely to happen in such a short time.

"Not that the investment will not grow, because it will, but
not at a level sufficient to boost the growth to 5 percent,"
Fauzi said.

He added that the country's general elections next year had
the potential to keep investors at bay with a wait-and-see
stance, before eventually investing here. The fact that the
current International Monetary Fund program will end later this
year would only encourage investors to further wait on the
sidelines, Fauzi added.

Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti said the day earlier that President Megawati Soekarnoputri
was expected to unveil to legislators on Aug. 15, the 2004 state
budget draft, which, it is said, will have an economic growth
target of 5 percent. Megawati will also present the government's
post-IMF economic program.

Dorodjatun did not provide details, but the current stability
with several macroeconomic indicators -- reflected in the
stronger rupiah against the U.S. dollar, lower inflation and
continued cuts in Bank Indonesia's interest rate -- is probably
the main reason for the government's upbeat economic outlook.

The government has also insisted that the economy this year
will grow by 4 percent, in line with an initial target, despite
various obstacles hampering the economy.

Echoing Fauzi, Dradjad Wibowo of the Institute for the
Development of Economics and Finance (Indef) also doubted the
government's ability to meet the 5 percent growth target, without
clear-cut policies designed to bolster economic activity,
especially in the corporate sector.

"I doubt that the growth target can be achieved because the
government has no economic policy to directly bolster the real
sector activities," Dradjad said.

Fauzi said that domestic factors would pose greater threats to
economic growth next year than that of external issues, because
"the global economy is actually expected to speed up its
recovery."

The world's economy is predicted to grow next year by 3.5
percent, higher than this year's estimate of 3.2 percent and last
year's 3 percent. This trend could well mean a rise in global
trade, while more international investors will also be looking
for attractive emerging markets for investment.

"So from an external point of view, next year should be better
than this year in terms of economic prospects. The problems lie
in the domestic factors," he added.

Not only has the government failed to complete or follow-up on
many reforms -- such as basic structural reform, labor-related
disputes, fiscal decentralization -- it has also been forced to
clean up the mess resulting from two major terror attacks in the
country over the last 10 months, all of which will lead to
further deterioration in the investment and business climate
here.

Since the 1997 economic crisis, the economy has only managed
to grow at a level of between 3 percent and 4 percent annually,
which has only managed to absorb 1.3 million new workers a year,
far below what is required.

Around 2.5 million new workers enter the country's job market
each year.

Labor expert Bomer Pasaribu said that if the condition
continued, Indonesia would have a staggering 42 million
unemployed people next year. He said unemployment this year would
reach 40 million, with 8 million categorized as open
unemployment.