Regions and Countries

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p. 3 of 12 BACK | NEXT Executive Summary I. Recent Economic Developments A. Growth Trends and its Composition B. Employment, Wages, and Poverty C. Investments D. Fiscal Developments E. Monetary and Price Developments F. Financial Sector Developments G. External Trade and Balance of Payments II. Progress of Reforms in the White Paper III. Short-and Medium-Term Economic Prospects and Policy Issues Appendix

Country Economic Review - Indonesia : I. Recent Economic Developments

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A. Growth Trends and its Composition

1. Indonesia has experienced stable and moderate growth performance over the last 3 years. Key indicators over 2001-04 underscore the resilience of the economy, which has weathered a series of exogenous shocks including the terrorist attacks in Bali in 2002 and Jakarta in August 2003, and the regional spread of the severe acute respiratory syndrome in early 2003. Against these odds, the Indonesian economy grew by 4.5% in 2003, up significantly from 3.7% in the previous year, but it is yet to show promise of turning in the higher growth rates needed for employment generation and sustainable poverty reduction.

2. Recent forecasts of Indonesia’s economic growth have been conditioned by the uncertainty over the parliamentary elections in April 2004 and the first ever, direct presidential elections, held in two rounds, over July to September 2004. Supported by the possible emergence of certainty and stability after the first round presidential elections in July and early outturns in the second round in September, the real gross domestic product (GDP) continued to grow by 4.9% over the first 9 months of 2004, relative to the same period in 2003. Growth remained resilient despite the terrorist attack at the Australian embassy in Jakarta in early August 2004, though security still remains a concern. The smooth conclusion of the electoral process is likely to enhance public and investor confidence. Key indicators of growth are presented in Table 1.

3. As in much of Southeast Asia, strong domestic demand has driven growth in Indonesia over the last few years. Robust personal consumption, in particular, has remained the principal driver of growth since the 1997–1998 Asian financial crisis. There has been a strong recovery in fixed investments, which grew at 11.3% during the first 9 months of the year over the same period in 2003, growing from a low base in 2002-2003, although business investment as a whole has been declining in relation to GDP. A noteworthy recent development has been the decline in public spending in 2004, which grew by a mere 3.8% during January-September 2004 over the same period in 2003. In terms of the components of growth, personal consumption accounted for 3.0 percentage points in the first nine months of 2004, boosted by higher spending stemming from the parliamentary and presidential elections. Government consumption contributed 0.4 percentage point and investments contributed 1.1 percentage points, while net exports contributed 0.4 percentage point of the GDP expansion. Construction, transportation, and retail activity picked up, and the sectors with the greatest impact on jobs strengthened somewhat more modestly, with agriculture growing by 3.2% and manufacturing by 5.6%.

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