[Nasional-e] Investing Slump

[Holy Uncle]

http://www.feer.com/articles/2003/0302_13/p053money.html

ASIAN ECONOMIC OUTLOOK: INDONESIA

Investing Slump
By Sadanand Dhume

Issue cover-dated February 13, 2003

INDONESIA'S POLITICS may be gathering speed ahead of next year's 
presidential election, but the economy remains stuck in low gear.

Consensus Economics expects that Indonesian economic output this year will 
grow by 3.6%, just a shade higher than last year's estimate of 3.4%. 
Economists say this is only about half the speed at which Indonesia's 
economy needs to grow to keep pace with new workers entering the labour 
market. It also means that the world's fourth-most-populous country will not 
make much of a dent in poverty.

Household consumption growth, which clocked a respectable average of 5.5% 
over the past two years, will likely slow to 3.9%, predicts Consensus 
Economics. Since the Asian financial crisis of 1997-98, Indonesia has relied 
on consumer spending to spur growth. Other potential engines--exports, 
government spending and investment--don't show any signs of a major uptick 
either. "I don't expect a turnaround of the economy before 2005," says 
Mohammad Sadli, a University of Indonesia economist and former cabinet 
minister. "This year and most of 2004 will be consumed by politics."

Despite the war clouds hovering over Iraq and the likelihood of higher world 
oil prices, Consensus Economics predicts that Indonesian oil and gas exports 
will stagnate at $59.7 billion. Nonoil and gas exports this year will remain 
frozen at $47.5 billion. Imports will stay at $35.8 billion.

The resulting trade surplus reflects what Sadli calls the biggest problem 
facing Indonesia's economy--a drastic decrease in investment. Imports are 
lower than exports because businessmen aren't buying machinery or raw 
materials for new factories. Meanwhile, gross fixed investment is expected 
to crawl upwards by 1.7%, which is an improvement over last year's 3.2% 
decline.





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