World Bank sees growth but new investment unlikely

World Bank sees growth but new investment unlikely

Dadan Wijaksana, The Jakarta Post, Jakarta

The World Bank said Indonesia's economy could grow faster this
year thanks to a better global trade picture, but warned of poor
performance in the investment sector.

The Bank, in its biannual assessment report on the region's
economies, predicted the Indonesian economy to grow by 4.5
percent in 2004, 0.5 percent higher than its initial prediction
last year.

The economy grew by 4.1 percent in 2003, the Bank noted,
slightly outpacing the government's target of 4 percent.

The report also urged the government to accelerate efforts to
boost exports and investment, as "growth remains consumption-
driven, with exports and investment underperforming compared to
other Asian countries".

"For Indonesia, the key challenge remains accelerating growth.
Turning this around requires improving the investment climate and
improving Indonesia's competitiveness," said Bert Hofman, the
Bank's lead economist in Indonesia.

On investment, the Bank said the country was still struggling
to recover to the pre-crisis level in terms of luring investors
to the country. The current contribution of investment to the
gross domestic product (GDP) is 10 percent under the pre-crisis
level.

"Fixed capital formation grew by a meager 1.4 percent in 2003,
and the share of investment in GDP declined from 20.3 percent in
2002 to 19.7 percent in 2003," said the report, and that the
condition had dragged down efforts to reduce unemployment and
poverty.

Citing official data, the Bank said between May 2002 and
February 2003 alone, 400,000 Indonesians became unemployed due to
the meager economic growth. Unemployment was on the rise and
reached 8.5 percent in August last year.

The number of jobs in the formal sector is also declining,
which means that more people have been absorbed by the informal
sector.

"The share of the informal sector employment increased from 54
percent in 1997 to 64 percent in 2002," said the Bank.

Numerous analyses have shown that the country's investment
climate will not improve unless integrated efforts in various
areas are made. Included in this must-do list of actions are:
ensuring stability, fixing the corrupt judiciary, easing worker-
employer disputes and resolving post-autonomy confusion.

Adding to its concerns is the general election, as
"uncertainty on an incoming government will not be resolved until
the end of the year. A recovery in investment this year,
therefore, remains unlikely".

The country held its legislative election on April 5, which
will be followed by its first direct presidential election on
July 5, with a strong possibility of a runoff in September.

Despite the gloomy outlook in investment, the country has
regained some ground in its macroeconomic performance.

Public debt fell in the past five years to around 69 percent
of the GDP, with external debt estimated at US$135 billion, or 70
percent of the GDP compared, with 80 percent in 2002.

Having graduated from a special lending program under the
International Monetary Fund (IMF) in December 2003, the nation
successfully launched $1 billion in sovereign bonds, in what
analysts said was a reflection of an increasing investors'
confidence.