Susilo warns global economic slowdown could affect RI

Rendi A. Witular, The Jakarta Post, Jakarta

President Susilo Bambang Yudhoyono warned on Tuesday that the country's economic growth might remain sluggish unless the government and the business community managed to anticipate the impact of a projected global economic slowdown this year.

Speaking in front of the Indonesian Economists Association (ISEI) at the State Palace, Susilo quoted the World Bank's 2005 Global Economic Prospect report, alerting the country to seek smart ways to improve the economy.

"There is a worrying projection from the World Bank over a possible slowdown in the global economy which may affect us. We are currently trying to make the economy competitive and efficient to help reduce the impact of the slowdown," he said.

According to the World Bank, global economic growth is expected to slow in 2005 and 2006 -- expanding by 3.2 percent each year from 4 percent in the previous years on average -- due to a number of factors.

Indonesia expects its economy to grow by 5.5 percent this year, and 6.6 percent on average over the next four years, with investment and exports being the engines of this growth.

Since the 1997 economic crisis, the country has been relying heavily on domestic consumption to push economic growth, as investors and exporters remain wary due to the poor business climate here.

"Our efforts to make the economy efficient is to combat corruption, prevent illegal fees and smooth bureaucratic procedures. Without such efforts, we can't compete with the emerging economic powers of China and India," said Susilo.

Previous surveys have ranked Indonesia's bureaucracy as corrupt and inflexible, with the country being one of the most difficult places in the world to do business.

While admitting that bribery and corruption were still rampant within the bureaucracy, the President promised to reduce it by making the government more transparent, efficient and accountable to the public.

But an evaluation of his first 100 days in power showed that his government has yet to successfully tackle the one issue that businesspeople constantly complain about: rampant corruption.

Susilo underscored the importance for Indonesia to be "smart" in marketing its products on global markets, and to use alternative energy sources, such as gas, to reduce production costs.

"The government and the business community should be smart in marketing the country's manufacturing products overseas amid a slowdown in demand," he said.

At the meeting, Susilo also warned of the economic and social problems resulting from the rapid growth in the country's population, which is increasing at the rate of 1.45 percent, or about three million people, annually on average.

The country's population this year is estimated to reach 230 million.

"I am worried that our natural resources and economy can no longer support such huge population increase. That is why I have taken the initiative to revive the National Family Planning program to help reduce birth numbers," said Susilo.

The government has allocated some Rp 600 billion (US$64 million) this year for birth control programs. The funds will be taken from the government's low-income assistance funds derived from the slashing of fuel subsidies.

Drivers for global economic slowdown

1. Investment cycle in the United States has likely peaked, implying a slowdown in the world's largest economy.

2. World demand has outstripped supply, resulting in substantial increases in oil and other commodity prices that have cut incomes -- moderating demand in many countries.

3. Higher interest rates will slow investment growth as central banks continue shifting monetary policy from a loose to a more neutral stance.

4. The large fiscal impulse that has helped propel the U.S. economy in recent years will weaken, although the deficit remains high; and in Europe, budgetary policy is expected to tighten as countries seek to regain control over deficits.

5. Efforts in China to bring growth down to a more sustainable pace may also contribute to weaker, but still strong, demand over the medium term.

Source: World Bank's 2005 Global Economy Prospect