RI's economic growth to lag behind neighbors'

The Jakarta Post, Jakarta

Indonesia's economic growth this year will lag behind that of other Asian developing countries, the United Nations said on Friday, citing massive debts cripple the state budget's ability to stimulate growth.

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) found that Indonesia's economic prospect in the medium term remained bleak.

"We have to admit that our economic growth will not be encouraging until 2004. That will hamper efforts to create jobs for new labor force," former ESCAP economist Prabowo said during the presentation of the commission's 2002 economic and social survey of Asia and the Pacific.

He said that while other economies in Southeast Asia would rebound sharply in 2003 and 2004, Indonesia's growth would likely stay at around 4 to 5 percent.

ESCAP said an upturn in global demand led by a rebounding U.S. economy will drive the region's growth.

"This year, the country's economy is expected to grow by 3.8 percent. While the growth figures for the next two years stand at 4.9 percent and 4.6 percent, respectively," Prabowo said.

By contrast, Malaysia and Singapore's economies might grow by 5.1 and 5.8 percent respectively in 2003. While in 2004, he said, their economies could grow by another 6.1 and 5.7 percent.

Laying the blame on massive public debts, Prabowo said Indonesia's state budget could not generate enough steam to drive the economy.

This year about 40 percent of government spending has been allotted to serve foreign and domestic debt payments.

The government spends less on development than it does on domestic debt payments, which amounts to around Rp 59 trillion (about $63 billion).

Almost all of this debt, will go into banks with government bonds which they took when the government bailed them out from the late 90s financial crisis.

A central bank official has said that almost 45 percent of banks' revenue last year was still paid by taxpayers' money.

Official data show the country owes some $130 billion, which accounts for more than 80 percent of this year's estimated gross domestic product (GDP) of $160 billion.

That leaves the government with limited options to invest in the economy, meaning growth rests more with how much the private sector can spare.

But with an uncertain investment climate, a banking sector in the doldrums, and companies still undergoing debt restructuring talks, economists warned against expecting much from private investors.

At the receiving end of this situation are the poor, Prabowo said.

Not only will a cut in development spending mean less money for social welfare programs, but the subsequent slower economic growth means that not enough jobs are created to absorb the millions of new entrance in the job market.

ESCAP urged Indonesia secure policies that enhance economic growth where the state budget cannot.

This translates into pushing ahead with the government's structural reforms program.

They include the restructuring of the banking and the private sectors, the privatization of state enterprises, upholding the supremacy of the law, and strengthening institutions and governance to support positive business and investment climate.