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)