Jakarta – The Indonesian economy, battered by two years of financial and economic crisis, will post growth of four percent in 2000, up from 0.2 percent this year, the Asian Development Bank (ADB) predicted Wednesday.

In its annual forecast of economic trends in the region, the Manila-based ADB said Indonesia's gross domestic product (GDP) will grow four percent in 2000 and five percent in 2001.

An economic crisis that hit several Asian countries beginning in mid-1997 slashed Indonesia's economic growth from an annual average of seven percent to 4.7 percent in 1997. The economy contracted by 13.2 percent in 1998 before growing again by 0.2 percent in 1999.

The ADB attributed the better growth for the year 2000 and 2001 to "a moderate rise in investment, increased exports from the non-primary sectors and strong agricultural production."

However, the ADB cautioned that the positive estimate hinged on the assumptions that "political conditions in Indonesia will not deteriorate further and that the rest of Asia's strong rebound will continue."

The pace of recovery, it said, will also be constrained by continued liquidity problems and a massive overhang of corporate debt.

The ADB also projected a modest inflation rate of 6.0 percent for the year 2000 and of 5.0 percent the following year, after the whopping 58.5 percent posted in 1998 and 20.5 percent in 1999.

The bank attributed the economic recovery to the growth of private consumption as exports remained weak. Exports which had declined by 10.5 percent in 1998, declined by another 7.4 percent in 1999. The bank expected exports to grow by 8.1 percent in 2000 and by 9.0 percent the following year.

Imports, which contracted by 30.9 percent in 1998, and by 10.8 percent in 1999 were expected to grow by 7.5 percent this year and 14 percent next year.

"Despite the large real depreciation of the rupiah and stronger oil export prices, exports remained depressed because of problems associated with high corporate indebtedness and access to credit," the bank said.

The bank said that although the Indonesian currency will remain vulnerable to swings in market sentiment, it was expected to remain stable at around 7,000-7,500 to the dollar in 2000.

On Wednesday, the rupiah broke the 8,000 to the dollar exchange level, last seen in October, amid political concerns that arose from the abrupt replacement of two economic ministers.

The ADB said one major consequence of the crisis has been a sharp rise in public debt, which by the end of March was expected to have increased to 95 percent of GDP from only 23 percent at the end of March 1998.

Domestic public debt now stood at 89 billion dollars compared to 63 billion dollars in external public debt. The domestic and external debt-service expenditures made up 41 percent of total current expenditures and 61 percent of total tax revenues and will drain public resources for the foreseeable future.

The government, it said, needed vigorous efforts to speed up domestic resource mobilization, including by accelerating asset sales through privatization.

Timely price adjustment were also needed to reduce subsidies and full transparency in the use of public resources as well as a careful programing of external assitance were also required.

The devastating impact of the crisis on the banking system points to the need to developing the capital market as a source of funds.