Indonesia's GDP growth still fragile: World Bank

JAKARTA (JP): The World Bank warned on Friday that Indonesia's output growth was "still fragile" despite signs of macroeconomic stability.

World Bank economist Bert Hofman said that domestic demand remained weak and consumption still contributed negatively to the recent year-on-year second quarter 1.82 percent economic growth.

"Lower wages and unemployment keep private spending low," he told a seminar on investment opportunities and strategy in Indonesia, which was organized by Kontan economic newsweekly and opened by Minister of Finance Bambang Subianto.

Hofman said the country's economic crisis caused real wages to drop between 30 percent and 35 percent, and "people are much poorer now".

He also said that the government fiscal stimulus which was expected to become a prime booster for economic growth had yet to significantly materialize.

"The fiscal stimulus has not come about," he said.

"You have to give more money to the poor who will immediately spend it."

Indonesia's economy has shown convincing signs of economic recovery since the second quarter of this year.

Inflation has been negative for five consecutive months, interest rates have fallen to near precrisis levels and the rupiah has stabilized below 7,000 to the U.S. dollar.

The Central Bureau of Statistics (BPS) announced recently that the gross domestic product (GDP) grew 1.82 percent in the second quarter of the year compared to the same period last year. This was the first year-on-year economic growth.

Signs of economic improvement led both the government and the International Monetary Fund to forecast GDP growth of between 1.5 percent and 2.5 percent in the current fiscal year ending in March 2000.

The economy contracted 13.68 percent last year when the economic crisis that started in the middle of 1997 heightened, putting millions of people out of work, rendering companies bankrupt or sharply cutting industrial production capacity.

Inflation skyrocketed to more than 77 percent, while the rupiah plunged to a record-low of 17,000 to the dollar.

The central bank benchmark interest rate soared to more than 70 percent last year.

Hofman said that year-on-year GDP growth in the second quarter of the year would have been minus 2.4 percent, not a positive 1.8 percent, if BPS used the original 1997 and 1998 economic data in its calculations.

"Growth this year could still go either way," Hofman said.

An economist from Bank Indonesia conceded that the government fiscal stimulus was yet to contribute to economic growth this year.

"The government is planning to pump up its fiscal spending significantly starting in September," said the economist who insisted on anonymity.

He said the fiscal stimulus would come from various economic programs, including the social safety net program and bank recapitalization program.

Separately, the World Bank said on Friday that its board of directors was expected to decide on the disbursement of a US$300 million tranche of its loan for Indonesia's social safety net program at the end of the month.

World Bank country program director in Indonesia Ben Fischer said that the bank committed a total of $600 million to finance the social safety net program in the current 1999/2000 fiscal year ending in March 2000.

The program is designed to help the poor survive the crisis.

The government has allocated a total of Rp 5.65 trillion (US$807.14 million) for the social safety net program in the current fiscal year. (rei)