Jakarta – Indonesia's economic growth in the next few years will be too low to lift millions of its people out of poverty, the Asian Development Bank (ADB) said Tuesday.
The bank, in its annual Asian Development Outlook, forecast gross domestic product growth of three percent this year and 3.6 percent in 2003. It said there was little prospect of a return to the heady growth of 7-10 percent – the rate necessary for sustained reductions in poverty – which Indonesia enjoyed before the 1997-98 regional financial crisis.
"To regain high growth rates it will be important for policymakers to work hard to convince both domestic and international investors that reforms are effectively reducing corruption and weaknesses in the legal and judicial system," the report said.
Jan van Heeswijk, ADB country director, noted some efforts in "chipping away" at corruption but added: "We clearly would like to see increased efforts."
The bank said growth of 3.3 percent last year was driven mainly by private and public spending, with businsss spending muted in response to recurrent political problems and a rise in tension after the September 11 terrorist attacks in the United States.
The US response to the attacks triggered a series of street protests and threats against foreigners from militant Islamic groups. The ADB noted a growing weakness in exports and imports last year, with net exports falling 26 percent.
Foreign direct investment faded as the world economy weakened and the ADB said there was also "a widespread perception that the policy environment for investment in Indonesia has turned harsh and unsupportive." Political opposition to privatisation was one symptom.
Approved foreign investment projects totalled six billion dollars in the first ten months of 2001, about one third the total in the same period of 2000. The fall predated the September attacks and would seem to be "part of the broader, longer-term problem of capital flight seen in Indonesia since the financial crisis.
"Continuing problems of financial governance, lack of credibility of the legal and judicial system and political uncertainty have all discouraged investors from making longer-term commitments," the report said.
The ADB also highlighted "stubborn inflation," poor tax collection and Indonesia's huge debt burden. Interest payments were the largest single item of government spending, equalling 5.9 percent of GDP last year.
"Our business is trying to pull families out of poverty," said deputy country director David Green.
Indonesia had shown over decades that it could significantly reduce poverty, he told a press conference. "Now we're facing a situation where for the next few years we don't see that. It drives us frantic."