Obstacles hamper Indonesia growth
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Indonesia's growth rate could reach 5% in 2006, the World Bank says.
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JAKARTA, Indonesia (Reuters) -- Indonesia's economy will grow only gradually over the next three years, the World Bank says.
Sluggish foreign investment, corruption and the threat of terrorism in the world's most populous Muslim nation will hamper its growth, it warns.
In a new report, the bank said Wednesday Indonesia should be eligible for lending in the range of $450 million to $850 million per year over the next four years, pegged to progress in implementing promised reforms.
It said lending was expected to be at the upper end of that range, which would be a substantial increase over recent levels of about $450 million a year.
Before the Asian economic crisis of 1998, when Indonesia ran up huge foreign debts, the World Bank lent the country an average of $1.3 billion annually and had come to be seen by many Indonesians as part of the problem, the report said.
The bank praised Indonesia for regaining economic stability following the collapse in 1998 of President Suharto's autocratic regime. The report said the bank was perceived as supporting the regime through loans and policy advice for 32 years, thus damaging its own reputation.
But it said further progress required successful direct presidential elections -- the country's first -- in 2004, as well as security and increased foreign borrowing.
"Extremist Islamic movements both within Indonesia and across the region, though representing a small minority, continue to pose a heavy burden of terrorist threats," said the bank's country assistance strategy report.
"The twin threats of separatism and terrorism raise concerns about security and uncertainty that impose high costs on the population and dampen the response of investors to Indonesia's strong macroeconomic achievements."
Military operations in Aceh this year to crush rebels and the threat of more deadly militant attacks like those in Bali in 2002 and on the JW Marriott Hotel in Jakarta in August, give the military leverage in politics, weakening the investment climate, the bank said.
"A gradual increase in growth characterises the base case economic outlook," the World Bank report said.
"Supported by a recovering international economy and a slow but steady improvement in the investment climate, Indonesia's GDP growth rate is expected to reach five percent by 2006, up from 3.5 percent in 2003," it said.
The bank said inflation, which the government hopes to pare back to six percent this year from double-digit figures in recent times, was seen falling to five percent by 2006.
The government has said it expects to achieve four percent economic growth this year, still well below the six percent many analysts say is necessary to tackle rampant unemployment and poverty in a country of 210 million people, the world's fourth most populous.
Reducing corruption and finding new sources of foreign funds would be key, particularly with the expiry of a multi-billion dollar International Monetary Fund bailout package at the end of 2003, the bank said.
That package was extended to Indonesia following the Asian economic and financial meltdown of the late 1990s. The World Bank estimated the government needed foreign financed disbursements of at least $3 billion annually from 2004 to fund its budget, compared to some $2.3 billion annually over the past three years.
The report said evidence of decisive and accelerated movement by Jakarta in implementing economic reforms in coming years could lead to higher lending by the World Bank than is now expected, and lack of any progress to substantially less.
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