RI economy on the road to recovery: ADB
RI economy on the road to recovery: ADB
JAKARTA (JP): The Asian Development Bank (ADB) says Indonesia
has emerged from the economic crisis and is now on the path to
recovery.
The bank said in a report that a broad based economic recovery
commenced as early as late last year and was continuing now,
however important vulnerabilities still exist to make the
recovery somewhat fragile.
"Indonesia's severe economic contraction has bottomed and
economic recovery is underway," ADB said in its latest Economic
Review of Indonesia released here on Thursday.
The economic recovery initially began in the agricultural
sector, which then spread to virtually all other sectors, ADB
added.
The ADB report mentioned macroeconomic stability as being the
critical ground for recovery in Indonesia.
The 1999 inflation rate stood at only 1.9 percent, compared to
the astronomical 78 percent in the previous year.
ADB attributed the declining inflation rate to falling food
prices, rupiah appreciation and the tight monetary policy over
the period.
In addition, low interest rates and rising exports maintained
in recent months have also positioned the country at an even more
favorable macroeconomic level.
"The consolidation of macroeconomic stability not only
supported the economic recovery and reduced poverty, but also
improved market sentiment towards Indonesia," the report said.
Economic growth, according to ADB, is predicted to be 4
percent to 5 percent this year.
For the year 2000 ADB said it committed US$1 billion in loans
to Indonesia, of which $200 million had been disbursed.
ADB's total loans to Indonesia amounts to $7.7 billion to
date.
The report said there was a significant macroeconomic impact
the country bore from the crisis: public debt.
Indonesia's public debt is estimated at 93 percent of Gross
Domestic Product (GDP), way up from 24 percent in precrisis prior
to mid-1997.
H.S. Rahman, senior economist at ADB, suggested that Indonesia
avoid being complacent with the current overall positive
developments.
Rising exports in recent months did not necessarily mean the
country's manufacturing activities were moving well again, he
warned.
"Many exporting companies have large inventories which they
produced before. They are now cleaning up their stocks to fulfill
export demands," he said.
In order for the recent rebound in exports to develop into a
steady trend, exporting companies must have adequate cash, solve
their debt restructuring problems and start full-capacity
production, Rahman added.
"Corporate debt restructuring is the real issue at the moment.
There has not been much progress in corporate debt
restructuring," he said.
He said better strategies, adequate incentives and proper
penalties were needed for the speedier process of corporate debt
restructuring.
Poor implementation of the bankruptcy law has created a lack
of enthusiasm for corporates to see their debts restructured, he
added.
Rahman said, however, that the government still ought to pay
close attention to the country's poverty level even though the
height of the economic crisis was long gone.
"The worst is probably over in terms of the crisis, but some
people have been seriously affected and a large number of new
poor have emerged," he said.
He said it was important that poverty was reduced in a
sustainable manner.
The ADB report said that an additional 17 million people had
fallen below the poverty line in less than two years.
There are as well millions of people living just above the
poverty line who could therefore easily fall into poverty when a
slight change in economic conditions occurs.
Rahman finally said that the government's fight against
corruption had to be continued to allow the government to work
effectively.
"Corruption eroded the people's trust in public institutions.
The people feel less empowered when they cannot rely on their
public institutions," he said.
"People need to believe that things are moving in the right
direction in the government, then the economy and the local
currency will rebound," he added. (udi)