Jakarta – Indonesia's economic growth rate in 2004 will increase to between 4.2 and 4.4 per cent despite the possibility of heightened tensions at home during the general and presidential elections, an economic research organization said.
"Although the economy will heat up next year, it will escape people's attention as it will be absorbed by political issues. But there will be a slight increase in economic growth compared to 2003," Imam Sugema, director of the Institute for Economic and Financial Development (Indef), said in a discussion on Indonesia's economic outlook in 2004.
The growth rate would be lower than the government's target of 4.5 per cent as key factors such as investment climate and export performance would still be far from satisfactory.
"The economic growth prediction of 4.4 per cent can be reached if the investment climate is improved. If not, growth may only reach 4.2 per cent," Imam said. But Indef also predicted a gloomy situation in the real sector in 2004.
The declining interest rate on BI certificates (SBI) which would be followed by declining bank interest rate had yet to prop up the sector.
"One factor that causes stagnation in the real sector is that banks' intermediary function has yet to recover," Imam said.
Banks would tend to extend loan to the consumption sector such as property and automotive rather than for investment and working capital, he added. On the rupiah's exchange rate, Imam said, it is expected to fluctuate slightly in a range below 9,000 level against the US dollar.
During 2003, the rupiah's exchange rate remained stable at 8,500 against the greenback.
"The rupiah's movements are much affected by (the movement of) three international currencies, namely the US dollar, Euro and Yen," Imam said.
Furthermore, Indef predicted that the most crucial problem for the government in 2004 would be the increasing unemployment rate due to industry's low capacity to absorb labor.
Imam said Indonesia would need seven per cent of economic growth to accommodate the number of workers which was increasing by two million people every year.
However, despite the unemployment problem, the country was expected to have reduced the number of poor people to below 18 per cent.
"But the number of poor people in 2004 is expected to reach 38.9 million, compared to 38.4 million in 2002," Imam said.
Meanwhile, an observer from Indef, Drajat H Wibowo, said Indonesia's economy in the next few years will depend on production sectors that had comparative advantages in the international market such as electronics, manufactures, and heavy metal products.
Drajat said the highest growth would be seen in the transport and telecommunication sectors, namely 7.8 per cent, followed by the utilities sector including electricity, water and gas at 6.7 per cent.
The trade sector during the period is expected to grow at 5.7 per cent, the financial sector 5.6 per cent, the processing industry 4.9 per cent, construction 4.4 per cent, services 2.2 per cent, agriculture 2.1 per cent and mining 1.5 per cent.
"The low growth in the mining sector will be due to the difficulties to get a license in addition to conflicts in some areas," Drajat said.