RI may be heading for another sluggish year

The Jakarta Post, Jakarta

Indonesia may be heading for another sluggish year in 2003 as economists warned of weakening consumption growth, and a prolonged slump in investments and export sales to impinge on economic growth, following the Oct. 12 terrorist strike.

A longer than expected slump in the world economy, they added, meant that Indonesia could not count on recovering export sales or investments just yet.

Economist Marie Pangestu said that domestic consumption -- the backbone of Indonesia's economy -- was faltering and that neither investment nor exports were recovering to offset the slower growth.

"Consumption growth is slowing, so we can't expect much from investments, and while we still have exports, it may be affected if security is low," said Marie of the Centre for Strategy and International Studies (CSIS) on the sidelines of a seminar on Tuesday.

Indonesia was hoping earlier this year for an upturn in the global economy that would drive up exports sales and increase the inflow of capital.

But the accounting scandals that have hurt Wall Street and the threat of war in the Middle East are extending the global economic slump.

Indonesia's already bleak outlook turned for the worse when the Oct. 12 bombing in Bali crushed the tourism sector.

Discounting the economic boost from tourism, economists have cut their economic growth forecasts for this year by 0.2 to 0.3 percent to an average of 3.5 percent and said growth would not likely meet the government's targeted 5 percent for next year.

Indonesia's economy, however, needs to grow by at least 5 percent to 7 percent a year to provide enough jobs to slash the massive unemployment rate and to lift millions out of poverty.

An expanding economy is also vital to reduce the debt burden on the state budget where more than 40 percent of public funding is spent on paying debts instead of crucial development spending.

So far the government remains upbeat on its 5 percent economic growth target, citing that domestic consumption accounted for 3 percent and that it would continue to grow as the population increased.

Marie, however, said that the government's assumption was hard to meet as the underlying drive factor was slowing and greater political instability ahead of the 2004 general election would likely dampen business confidence.

She said that prior to the Oct. 12 bombing, the business community assumed the economy would neither improve nor deteriorate until after the 2004 general election reinstalled political stability.

"Now that calculation has changed in a sense that it could get worse and that this is a possibility," she said.

Standard Chartered Bank economists shared their concerns on Wednesday of a weaker outlook for next year.

"Consumers are absolutely the key to the whole economic environment," said the bank's Southeast Asia chief economist, Steve Brice, following a Wednesday seminar on the economy.

Consumer confidence was shaken after the Oct. 12 bombing and Brice said that the government should watch out for indicators like car sales, electronic sales to measure the extent of a possible plunge in spending.

Standard Chartered economist Fauzi Ichsan said that domestic consumption contributed 74 percent to economic growth, followed by 17 percent from investments and the rest from exports.

To maintain consumption growth, he said, the economy needed job creating investments to prevent a weaker rupiah from stoking the inflation rates.

Fauzi added that post-Oct. 12, investors were also looking into security aside from legal certainty and political stability before coming here.