Kwik optimistic economy will grow by 3.8% this year

JAKARTA (JP): Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie expressed optimism on Wednesday that the 3.8 percent economic growth target in the April-December 2000 budget year would be attained.

Kwik said that a 3.8 percent gross domestic product (GDP) growth level would be crucial to creating more employment, promoting investment and ensuring that domestic banks could achieve a minimum 8 percent capital adequacy ratio (CAR) by the end of next year.

"The 3.8 percent economic growth target in the April-December 2000 period can be obtained and can even be surpassed," he told reporters after a Cabinet meeting.

Kwik's comments were made amid increasing concern that the government might not be able to meet the GDP growth target this year, particularly due to the slow progress of the bank and corporate restructuring programs which discourage investment, a key factor for economic growth.

Indonesia's economy plunged into a deep recession in 1998 following the financial crisis that started in the middle of 1997.

While the five-month old administration of President Abdurrahman Wahid has been credited for its success in dealing with the political turbulence and empowering civil society, analysts are still concerned about the slow progress of the development of the ailing economy.

But Kwik said the economy reached rock bottom in the second quarter of last year, although 1998's full year GDP growth was relatively low at 0.2 percent.

Kwik conceded that a smooth progress in the government's bank and corporate restructuring program was the key to attaining the economic growth target.

He said that restructuring the ailing banking sector was pivotal to allowing new lending in order for the real sector to grow.

He added that restructuring the foreign and domestic debts of the corporate sector would ensure the resumption of both domestic and foreign bank lending.

"The resolution of private sector overseas debt will help reopen access to overseas financing sources," he said.

Kwik said that the economic growth in 2000 would, in particular, be led by consumption spending and exports.

A higher-than-estimated oil revenue is expected to provide the government coffers with a huge windfall and will allow for greater spending to stimulate the economy.

Kwik admitted that investment would not yet be significant despite the massive potential as reflected in the low ratio of realized foreign investment and approved foreign investment.

Kwik said that foreign investment this year would increase, while domestic investment by both the private sector and the government would remain stagnant or even decline.

But he added that it would be difficult to push foreigners to realize their investment plans this year, particularly due to the looming uncertainty about the country's political situation and the fact that foreign investors might be more interested in acquiring existing assets at bargain prices rather than embarking on greenfield projects.

Kwik said that creating transparency in economic policy and legal certainty was another important factor to encouraging investors to realize their plans.

Kwik explained that even if the corporate restructuring program did go well, new bank lending would likely not be channeled into new investment ventures but into manufacturing plants that were suffering from idle capacity due to the lack of working capital loans.

He said that in terms of supply, economic growth in 2000 would be particularly fueled by industry, and the agriculture and services sectors. (rei/prb)