Indef, LIPI see moderate growth for next year
Indef, LIPI see moderate growth for next year
Fitri Wulandari, The Jakarta Post, Jakarta
The country's economic growth is projected to remain at a
moderate level of around 4 percent next year as uncertainty
during the seven-month voting and campaigning periods will cause
investment to remain weak.
The Institute for Development of Economics and Finance (Indef)
predicted the economy to grow by between 4.2 and 4.4 percent in
2004, which is lower than the government's projection of 4.8
percent.
Meanwhile, the state-sponsored Indonesian Science Institute
(LIPI) said that if the general election process was not smooth,
the economy would only grow by 4 percent, which is the same level
estimated for this year.
Indef economist Drajad Wibowo said in a press conference on
Tuesday that domestic consumption would continue to be the main
engine of next year's economic growth, as investment and exports
would remain weak.
Indef predicts political parties could spend around Rp 15
trillion next year on campaigning and other activities. This
large amount of money will eventually mean a boost in domestic
consumption.
He said that investment may only start to enter the country in
the second half of next year, assuming that the election process
goes well.
"Indonesia (economy) would grow by 3.9 percent if there is no
investment coming in next year," Drajad said.
He added that export would also remain weak as local
businesses would tend to focus on trading goods in the domestic
market instead producing goods for the export market as
competition from China and Vietnam becomes tougher. This is
despite the expected recovery in the global economy, which should
increase demands for export products.
For the past couple of years, the country's economy has been
mainly driven by domestic consumption due to the weak performance
of the investment and export sectors. Investors have been
generally reluctant to pour in fresh money into the country due
to a host of problems at home such as corruption, poor
infrastructure, lingering labor conflicts and lack of faith in
the judiciary.
During the first nine months of this year, capital formation
(a measure of investment) was 25 percent lower than the level
prior to the 1997 economic crisis.
But LIPI's economist Wijaya Adi said that there was also a
possibility for the economy to grow by 5.4 percent next year
particularly if the elections go very well.
He said that under such a scenario, the current trend of
increasing stability in macro-economic indicators would push
households and businesses to become more optimistic about the
economy, thus triggering higher investment.
On the external front, the expected recovery in the economies
of developed nations (export destinations for many local
products) will also bode well for exports.
In the worst case scenario, if the election disappoints the
people and there is social unrest, the economy will slow way
down, while inflation will increase and the rupiah will weaken.
During the past year, the country's macroeconomic indicators
have improved as evidenced by the low inflation, stronger rupiah
against the U.S. dollar and declining interest rates.
Both Indef and LIPI warned of the possible worsening
unemployment problem next year, particularly if the economy grows
too slow.
LIPI predicted that full unemployment this year would be 10.3
million people, a 14 percent increase from last year's 9.1
million. Next year the number could grow to 10.75 million
jobless.
Economic indicators for 2004
Indef LIPI
GDP(%) 4.2 - 4.4 4.8 - 5.4
Inflation rate(%) 5.5 - 7.0 6.4
Interest rate(%) 8.4 - 9.0 8 - 8.84 (3-month BI)
Exchange rate(Rp) 8,400 - 8,700 8,000 - 8,300
Open unemployment (millions) 10.5-10.8 ---
Population Below Poverty Line (%) 17.7-18.0