Christine T. Tjandraningsih, Jakarta – Indonesia will see modest economic growth next fiscal year, starting April 1, but its recovery prospects will be overshadowed by the grim global outlook and continuing political uncertainty at home, the World Bank said Wednesday.
"Indonesia's prospects are subject to a wider-than-usual band of uncertainty," the bank said in a 20-page document titled "Country Assistance Strategy – Progress Report" made available to journalists the same day.
"The point at which the economy will bottom out and start growing again is hard to predict," it said.
According to the World Bank projection, Indonesia's gross domestic product (GDP), estimated to fall 13% in fiscal 1998, will grow by 1% in fiscal 1999, followed by a 3% growth in fiscal 2000.
The bank projects inflation in Indonesia to fall to 10% in fiscal 2000 from 20% in fiscal 1999 and 80% in fiscal 1998. Meanwhile, the budget deficit is expected to remain stable at about 4.8% of GDP in fiscal 1998 and 1999.
This assumes reforms are implemented speedily and consistently, the fiscal stance remains expansionary and monetary policy eases gradually as prices and the exchange rate continue to stabilize, the report said.
"The global outlook continues to look grim for Indonesia," the World Bank said. "Quite apart from depressed international commodity markets, especially for oil, which affects both export and budgetary revenues, the prognosis for Indonesia's East Asian markets looks none too promising."
The report said Indonesia's recession would be prolonged and its recovery postponed if global conditions and political developments take a turn for the worse.
Indonesia's GDP may decline 3% in fiscal 1999 and remain stagnant in fiscal 2000 if global conditions worsen, the World Bank said.
According to the bank, the government under President B.J. Habibie has continued to show commitment to reforms, including improving public sector governance and transparency, but these are just starting and may be increasingly focused on short-term measures in the run-up to the country's general election on June 7.
"Indications are that several initiatives could be started during the period leading up to the election, including anticorruption actions, civil service reforms, fiscal decentralization and judicial reforms," it said.
"There is a danger, of course, that these initiatives may be motivated by short-term political considerations to the detriment of longer-term development objectives, and they will require close monitoring and intensive, constructive involvement by the bank and others," it added.
The bank said it still sees a period of growing political uncertainty – especially in the run-up to the parliamentary election, the presidential election in November and the subsequent appointment of a new cabinet in December – haunting the progress made by Habibie's government and the country's economic condition in the future.
"The period will be dominated by enormous uncertainties associated with the complex political transition to a new government, which will influence greatly the bank's future role in Indonesia," it said.
"Calls for a 'people's economy' and a redistribution of assets from the rich to 'pribumis' (native Indonesians) have acquired considerable popular support and need to be channeled in constructive ways, or else they could do considerable damage," it added.
The bank stressed it will maintain a high degree of flexibility to allow rapid adjustment despite the uncertainty, but said "Indonesia's future is where it should be, in the hands of Indonesians."
"We must not forget that in Indonesia, the bank is playing only a small role in a much larger drama," it said.
[On March 11 AFP reported that the Investment Minister, Hamzah Haz, said that Indonesia approved foreign investments worth 300 million dollars in the one-and-a-half months to mid-February – less than 10 percent the approvals recorded a year ago - James Balowski.]