RI economic recovery shaky: WB

RI economic recovery shaky: WB

JAKARTA (JP): The World Bank predicted on Wednesday that
Indonesia's economy would shrink a minor 1 percent in the
1999/2000 fiscal year before returning to modest growth of 3
percent in the following year, but only if the government sticks
to its reform program.

If the government slows down on pushing through reform and the
global situation also worsens, Indonesia's gross domestic product
would dip by 3 percent next fiscal year, beginning in April, and
remain stagnant in the following year.

"Indonesia's prospects are subject to a wider-than-usual band
of uncertainty," the bank said in its country assistance strategy
progress report.

"The point at which the economy will bottom out and start
growing again is hard to predict."

Part of the uncertainty, the bank said, lay in Indonesia's
main markets in East Asia and also in continued political
uncertainty at home.

A reversal in the world equity market and a deepening
recession in Japan -- Indonesia's main trading partner and source
of investment -- would seriously affect the country's economic
recovery, it added.

The report warned the country's recession would be prolonged
and recovery postponed if domestic political events took a turn
for the worse.

"Nevertheless, if political events go smoothly and the
government implements the reform program speedily and
consistently, the economy will bottom out in the 2000/2001 fiscal
year."

The turnaround in growth is expected to come from agriculture
-- partly a rebound from last year's drought -- mining and
exports of labor intensive manufacturing.

The bank predicted inflation should moderate to 20 percent
next fiscal year and 10 percent the following year, from almost
80 percent in the 1998 calendar year.

The government should continue with its tight monetary policy
to reduce inflation and stabilize the rupiah, the bank said.

It forecast Indonesia would continue enjoying a trade surplus
of 3.2 percent of the GDP next fiscal year and 2.4 percent the
following year. The surplus is projected to stand at 4.6 percent
this fiscal year.

Domestic demand contraction and the rupiah's real depreciation
helped swing the current account into surplus, the bank said.

In the fiscal sector, the bank said, Indonesia should continue
with its expansionary fiscal policy to stimulate demand.

Consequently, the budget deficit will remain high, at 4.8
percent of GDP in 1999/2000 and 3.5 percent the following year,
compared to 4.7 percent in the current year.

This will result in increasing external financing needs for
the country.

Indonesia, the bank said, would need about $15 billion in the
1998/1999 fiscal year and in each of the next four years for
amortization payments of both public and private external debt.

The bank has committed to providing $4.9 billion in the three-
year period 1998 through 2000, including $3.2 billion in
adjustment lending to help finance government budget needs and
$1.7 billion in investment lending.

With the new loans, Indonesia is projected to near the bank's
concentration limit of $13.5 billion for a single large borrower
for the 2000/2002 fiscal years. It would limit the scope for
additional lending in the future to about $1.2 to $1.3 billion a
year.

The bank noted the government of President B.J. Habibie
continued to show its commitment to reform. The government has
attained "important achievements" in import-export policy
reforms, domestic market deregulation and investment policies
changes and improved forest management regulations.

It noted the government has also initiated several other
measures, including anticorruption actions, civil service
reforms, fiscal decentralization and judicial reforms.

However, it warned the government could become increasingly
focused on short-term measures before the June 7 general
election.

"There is a danger, of course, that these initiatives may be
motivated by short-term political considerations to the detriment
of longer-term development objectives, and they will require
close monitoring and intensive, constructive involvement by the
bank and others," it said.

The election is touted as the first free and fair election in
three decades.

The poll and presidential election in November could fuel
uncertainty and stall government decision-making, the bank said.
(rei/rid)