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.