World Bank optimistic on RI economy

World Bank optimistic on RI economy

Dadan Wijaksana, The Jakarta Post, Jakarta

The World Bank praised the government's economic reform
package laid out in a special White Paper as a program of
impressive targets that promises to improve the investment
climate and generate higher economic growth.

"The package lays out an impressive time-bound program of
economic reforms that, if implemented, would ensure continued
macroeconomic stability, lower interest rates and risk premiums,
and higher investment and growth," the bank said in its latest
report on East Asia's economies published on Thursday.

Progress of the reform programs laid out in the package,
coupled with an absence of problems during the impending
elections, should gradually improve the country's investment
climate, which would in turn lead to more investment in the
medium term.

"We expect (economic) growth to accelerate from 3.5 percent
this year to 5 percent by 2006," the bank added.

To support its decision not to renew the International
Monetary Program (IMF) bailout program, Jakarta last month issued
a White Paper, which specifies the economic policies and targets
to be met by the government over the next 18 months.

The IMF has been assisting the government in formulating its
economic reform programs since 1999, to help it stand on its own
feet after being crippled by the severe financial crisis. In
return, Indonesia will have received some US$4.8 billion in loans
to strengthen its external reserves. The program is slated to end
later this year.

While acknowledging that the government's decision had found
acceptance inside and outside the country, the report reiterated
the bank's support for the decision.

"The general perception is that Indonesia's macroeconomic
conditions have improved enough to warrant the decision," it
said.

The report also praised the government for pursuing a tight
fiscal policy as part of its continued fiscal consolidation,
although as a result, "the persistent under-spending of
development expenditure is of concern."

Although the fiscal consolidation has helped restore financial
stability -- as shown by the external public debt which had
fallen to 69 percent of gross domestic product (GDP) as of June
this year from 158 percent in 1998 -- it limits the ability to
create enough jobs through increased spending.

Despite continued macroeconomic stability, the unemployment
rate reached 8.5 percent in February 2003 -- excluding conflict-
affected areas such as Aceh, Maluku and Papua -- up from 8.1
percent in May 2002, the bank said.

"It suggests that the current moderate growth is not enough to
improve an employment condition."

Analysis by many economists have predicted that for the
economy to be able to absorb some 2.5 million new job-seekers
annually, it has to grow by at least 6 percent.

The World Bank is one of the country's traditional lenders
with annual loans of around $400 million to help finance various
development projects in the country.

World Bank's Medium-Term Macroeconomic Projections
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2002 2003 2004 2005 2006 2007
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Real GDP growth (%) 3.7 3.5 4.0 4.5 5.0 5.0
Inflation (%) 11.7 6.5 6.0 5.0 5.0 5.0
BI 3-mo int. rate (%) 15.2 9.5 9.0 8.0 8.0 8.0
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Source: World Bank