Indonesian economy to grow 5.5%, ADB says

Indonesian economy to grow 5.5%, ADB says

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia's economy is set to grow moderately by 5.5 percent this
year and later pick up to over 6.0 percent in the next two years
on the back of buoyant consumption and improving investment, the
Asian Development Bank (ADB) says.

In its latest assessment report on the region's economies, the
bank also forecasts that Indonesia will be able to increase its
gross domestic investment (GDI) to as much as 26 percent of its
gross domestic product (GDP), while maintaining an inflation rate
at slightly less than 6 percent.

Everything, however, would be dependent on the government's
success at improving the country's investment climate through
corruption eradication, ensuring legal certainty, and addressing
the potential risks associated with decentralization.

"Good governance will be a key issue to achieving this," ADB
economist Amanah Abdulkadir said on Wednesday when presenting the
report during a live linkup with the ADB's headquarters in
Manila.

"Indonesia's economy will only grow faster in the future if
there are improvements in governance, accountability and legal
certainty."

The ADB is forecasting the region's economies to grow by
between 6.5 percent and 6.9 percent this year on the back of
strong domestic demand and stronger intraregional trade.

Indonesia's economy grew by 5.13 percent last year, up from
4.5 percent in 2003, while the nation's on-year inflation rate in
2004 stood at 6.2 percent.

Concerning legal certainty, Amanah cited a recent decision by
the Constitutional Court to annul the Electricity Law as having
created more uncertainty on the future direction of Indonesia's
reforms.

Meanwhile, on decentralization, Amanah said that there should
be better coordination to avoid the issuance of conflicting
regulations by local administrations, which would only result in
a high-cost economy.

"The decentralization policy should in fact produce benefits,
not problems for the country's economy," she said, adding that
continued confusion over decentralization would do no good for
the government's efforts to lure investment.

"Investment in infrastructure, for instance, would result in a
more efficient economy," she said.

"A low-cost economy would bring the prices of goods, and thus
inflation, down," she said.

Last but not least, the government must increase its efforts
to create jobs for the more than 2 million people entering the
nation's workforce every year, and increase development spending
on poverty reduction schemes.

Indonesia's Economic Outlook

2004 2005 2006 2007

GDP 5.1 5.5 6.0 6.5

GDI/GDP 21.3 22.3 24.2 26.1

Inflation rate 6.2 5.9 5.5 5.5

Export growth 9.4 6.0 7.0 8.0

Budget deficit 1.3 0.8 1.0 0.5

Source: Asian Development Bank