Daniel Cooney, Jakarta – Indonesia's economy grew slower than expected in the first quarter, leading a senior government official to warn that political instability could set back the country's recovery.
The gross domestic product grew by 3.21 percent this past quarter from a year ago, the Central Bureau of Statistics said Monday, less than the 4 percent to 5 percent growth that had been expected.
In a related development Monday, President Abdurrahman Wahid said the government has no plan to intervene in financial markets on behalf of the rupiah, which lost 9 percent of its value and hit a seven-month low last week. It fell another 2 percent Monday to 8,540 rupiah to the dollar.
Wahid also denied speculation that the government was considering some form of capital controls, saying that such action would go against its bailout loan agreement with the International Monetary Fund.
The slide of Indonesia's currency and the slow growth figures pose a serious threat to Wahid's eight-month reformist government in its quest to boost the debt-ridden, debilitated economy and to implement further democratic reforms.
The release on Monday of the new economic growth figures fueled speculation that Indonesia's economy may be in for a sharp downturn. "Political instability and legal uncertainties, as well as the security situation, really stifled the growth that we should have had," said Sugito, the chief of the Central Bureau of Statistics. "For the whole year, we will have to revise the growth from 4 percent to a worst-case scenario of 1.5 percent if those things continue."
Sugito, like many Indonesians, only uses one name. He appeared to be blaming infighting in Wahid's coalition government, continuing violence in Indonesia's painful transition to democracy after 32 years of rule by former President Suharto, and a weak judicial system that makes it hard to combat corruption and handle bankruptcies.
Despite the drop in growth, the bureau pointed out that it had revised upward its growth figures for 1999's first quarter, making this year's figure not quite so disappointing.
The rupiah's value has been driven down by a combination of expectations of higher US interest rates and a confusing barrage of comments by top Indonesian policy makers.
On Monday, Wahid blamed the weakness of the currency on violent demonstrations in the capital on Friday and Saturday, during the two-year anniversary of riots which led to Suharto's downfall. The first was led by students demanding that Suharto be tried for alleged corruption during his regime. Saturday's started in Chinatown in a dispute over the removal of street vendors selling pirated CDs.
But currency dealers in Jakarta said Wahid gave conflicting comments Friday and Monday on the likelihood of intervention and said that was evidence of policy paralysis within the government and indicative of the lack of understanding it has as to how to communicate with the financial markets.
Last week, Finance Minister Kwik Kian Gie said that while the economy is recovering, most conglomerates are still burdened with huge debts and corruption remains a major problem. He also said, "If I were a foreign investor, I wouldn't come to Indonesia. The law enforcement is not there, but not only that, the whole thing is so confusing."