RI economy weakened by SARS and Iraq war: WB
The Jakarta Post, Jakarta
The World Bank painted a weak outlook for the country's economy this year due to the negative effect of the recent war in Iraq and the outbreak of SARS.
The country's major creditor said on Thursday that the economy this year would likely grow at a slower rate of 3.3 percent from 3.7 percent last year, which in turn would worsen unemployment.
It said that stability in macroeconomic indicators such as a stronger exchange rate of the rupiah, lower inflation and declining interest rate environment had failed to accelerate growth.
"There are few signs that increasing macroeconomic stability and reduced vulnerability is translating into higher growth," it said in its latest report on the economic outlook in Asia.
The Bank also predicted a weaker economic growth for other countries in the region due to the threat of SARS and the Iraq war.
While the pneumonia-like disease would further damage Indonesia's tourism sector, still reeling from the devastating Bali attacks, the Iraq war puts a threat on the global economy, which would likely diminish exports demand.
"The impact of SARS, which has started to affect travel to the country, is likely to further subdue the outlook in the tourism industry," it added.
Tourism accounts for about 5 percent of the country's gross domestic product (GDP).
As for exports, the performance has already showed signs of declining.
According to the Central Bureau of Statistics (BPS), exports value declined in February by 0.85 percent to US$4.88 billion from $4.92 billion posted in January. BPS said the fall in month- on-month exports was caused by a 2.79 percent drop in non-oil and gas exports, which stood at $3.6 billion.
All these have cast a shadow on the government's efforts to maintain macroeconomic stability.
The local currency has proven to be relatively untouched by external turmoil, hovering steadily at around Rp 9,000 per dollar. In fact, only recently the rupiah was off to a ten-month high of Rp 8,600 per dollar.
The stable currency has allowed monthly inflation to fall below double digits on a year-on-year basis, well on track to achieving the government's target of 9 percent.
Consequently, the central bank has gradually lowered its interest rate to around 11.28 percent at present. This has helped boost consumer credit, which jumped 37 percent throughout 2002.
But concerns over rising employment have led to the easing of consumer confidence, which has been the main engine of growth for the past years. The World Bank said that in February the consumer confidence index dropped to 82.3, down 10 points from January.
Investment also continued to weaken with domestic investment approvals in the first two months of 2003 down 10 percent from the same period in 2002. As for foreign direct approval (FDI), although it doubled in the same period, this does not represent a rise in confidence because it was due to one large project
The reports also said that the country's unemployment trend is rising, as employment growth is lagging behind the number of people entering the labor force. "Between 1997 and 2002, the labor force increased by 7 percent while employment increased by 2.7 percent."
As the annual increase in new members of the labor force is estimated to reach 2 million to 2.5 million, the bank said that "some calculations show that the (economic) growth rate required to absorb this increase at existing wage levels is around 5 percent".