Terrorism hurts economic growth: ADB
The Jakarta Post, Jakarta
A series of terrorist attacks in the country are further hurting the investment climate here on a level that can slow the pace of the economic growth in the second half of the year, a report from the Asian Development Bank (ADB) revealed on Tuesday.
"The fallout from recent terrorist attacks in Indonesia is likely to further cloud the investment climate," the Bank said in an update to its Asian Development Outlook.
So, instead of growing by 4 percent as targeted by the government, "growth is predicted to decelerate in the second half, bringing the full-year average to 3.4 percent."
Last year, the economy expanded by 3.7 percent.
Indonesia has been the target of several terror strikes in recent years -- with the latest being the one that hit a luxurious hotel in Jakarta -- a threat that has added to an already long list of investor grievances here.
Investors, even before terrorism began to darken the mood here, have put Indonesia off their radars in terms of investment, mostly due to its failure to speed up structural reforms in the bureaucracy and legal system, as well as other problems such as labor-related violence and the decentralization of illegal fees.
All of those have been detrimental to new investment.
While it acknowledged that there was a 46 percent rise in foreign direct investment (FDI) approvals as of July this year, ADB warned that "its translation into actual expenditures will, however, depend on development in the investment climate."
As of July 31, FDI approval stood at US$4.7 billion, or a 46 percent increase over the same period last year.
"Although private capital inflows have gained through the sale of some state assets, FDI remains limited in view of investors' concerns over security, underutilization of capital and poor governance," the report said.
Worse still, the heavily-burdened state budget has provided little room for the government to spend more to boost economic activities.
"Fiscal options in the future will be limited due to resource and debt constraints," the report added.
The country is in dire need of flows of investment, a prerequisite toward achieving an economic growth higher than around 3 to 4 percent, as has been the case over the last three years.
Economists have said Indonesia's economy would have to grow by around 6 to 7 percent annually to fully absorb the 2.5 million, or so, new job seekers each year.
Meanwhile, the report also painted a bright outlook for the country's macroeconomics picture.
"For 2003, inflation is forecast to average 6.6 percent, aided by a fairly stable rupiah that has resulted from a strong current account surplus and hefty international reserves," it said, an upgrade from its earlier forecast of 10 percent.
Looking ahead, and betting on the absence of further shocks, ADB predicted the economy would grow by 4 percent next year.
Selected RI's economic indicators (%) -----------------------------------------
2002 2003 2004 ----------------------------------------- GDP Growth 3.7 3.4 4.0 CPI 11.9 6.6 6.2 CAB/GDP 4.3 3.0 3.3 ----------------------------------------- GDP: Gross Domestic Products CPI: Consumer Price Index CAB: Current Account Balance
Source: ABD