JETRO sees 3.8% growth for RI economy in 2002

Berni K. Moestafa The Jakarta Post Jakarta

The Japan External Trade Organization (JETRO) estimated Indonesia's economy to grow by 3.8 percent next year, on the back of continued solid domestic consumption and better export sales, as developed economies were likely to swing back to growth.

"The basic reason for 3.8 percent economic growth for Indonesia is an improvement in consumer confidence, as Indonesia reestablishes its political stability under Megawati's government," Mitsuru Toida, the director general for development studies at JETRO's Institute of Developing Economies, told The Jakarta Post in an e-mail last week.

For this year, JETRO expected the economy to grow by 3.4 percent, as against 3.5 percent according to government estimates.

Most research firms agreed on a higher economic growth next year as strong consumer spending would drive up investment.

JETRO published last week a paper on the outlook of 10 East Asian economies such as China, South Korea and Hong Kong, and five countries within the Association of Southeast Asian Nations (ASEAN), including Indonesia.

"At the time of the events of Sept. 11, exports from East Asian countries and regions had already been seriously affected by the Information Technology (IT) recession in the advanced economies," JETRO said in reference to September's terrorist attacks in the United States.

The incident tipped the U.S. economy into contraction after it had slowed down since early this year, dragged down by the crash in the IT or dotcom industries.

Reflecting this downturn, Indonesia's export sales declined.

Government officials forecasted exports to be lower, at between US$42 billion to $45 billion, from last year's $47 billion.

But the rupiah's sharp depreciation against the U.S. dollar more than offset lower export sales, as it was able to lift real- term exports by nearly 10 percent, JETRO said.

This meant that despite lower sales, export revenue in terms of the rupiah grew, and thus kept domestic consumption firm.

The rupiah fell largely on the seven months of political turmoil preceding president Abdurrahman Wahid's ouster last July.

But as export-based income remained strong, JETRO predicted private consumption to grow by 5.4 percent this year.

A rise in civil servants' salaries might contribute to a 6.8 percent growth in government-led consumption for the same period.

"In 2002, Indonesia's economy will continue to benefit from strong domestic demand as in 2001," JETRO said.

However, it noted growth in domestic consumption would tail off a little next year. Private consumption would decelerate to 3.5 percent from an estimated 5.4 percent this year.

JETRO gave no reason for the lower private consumption growth, but said that more cuts in energy subsidies would jerk up next year's inflation rate to 12 percent from around 11.6 percent now.

Consumer spending could hardly rise if inflation grew faster than the economy's capability to generate growth in income.

Government consumption might also grow more slowly than it did this year, or down 1.8 percent to 5 percent, as the government intended to cut spending in favor of lowering its fiscal deficit, JETRO said.

But since overall estimates for domestic consumption remained strong, JETRO predicted private investment to increase by 0.3 percent to 6.2 percent next year.

Foreign direct investment, however, was likely to stay low.

JETRO saw export sales remain battered by a sluggish global market, and expected growth to fall lower than this year.

A recovery in export markets might come in the second half of next year, led by a turnaround in the U.S. economy, it added.

Signs of this were already seeping through, as the U.S. Federal Reserves' interest rate cuts were starting to pay off.

The Fed has been lowering its interest rates cuts since early this year to snap the U.S economy back toward growth and stave off a recession.

JETRO predicted the economic recovery in the U.S. and other developed nations to be led by a surge in their IT industries.

Countries like Singapore and Malaysia, which heavily depend on the IT markets, would be among the first to feel the upswing.

For countries with less exposure to the IT industries like Indonesia, generally the time lag is about six months after a rebound in the U.S. economy.