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Indonesia's Economic Growth To Slow Down Slightly In 2002

MANILA, PHILIPPINES (9 April 2002) - Economic growth in Indonesia is likely to decline slightly in 2002, registering a gross domestic product (GDP) growth rate of 3 percent compared to 3.3 percent in 2001, according to the Asian Development Bank.

The Asian Development Outlook 2002 (ADO), an annual publication that forecasts economic trends in the region, predicts that brighter prospects in overseas markets in 2002-2003, continued progress on economic reforms and prudent fiscal and monetary policies will trigger a modest rise in GDP growth to 3.6 percent in 2003.

"However, there seems little prospect that the economy will again experience the rapid economic growth of 7 to 10 percent annually that it experienced during the decades prior to the Asian financial crisis in 1997-98," the ADO adds.

Indonesia's GDP growth of 3.3 percent in 2001 was markedly lower than the strong 4.8 percent expansion in 2000. The 2000 experience reflected a delayed rebound from the Asian crisis but this robust performance could not be maintained in view of investor uncertainty and weakening overseas markets.

While Indonesia experienced strong consumer and public spending in 2001, business spending was muted in response to recurrent political problems. The relatively peaceful change in the presidency last July provided a moment of calm before the events of September 11 in the US and the subsequent rise in tension that again unnerved businesses.

Exports and imports also weakened in 2001, with net exports down 26 percent during the year.

Private consumption spending rose 6 percent in 2001 - the sharpest jump since 1997 - with consumers responding to income increases in 2000 and early 2001.

By sector, the ADO reports that manufacturing output rose 4.3 percent in 2001, and utilities and some services sectors showed strong growth. The manufacturing sector benefited from high investment early in the year as well as sustained consumer spending.

Agriculture continued to reflect weak productivity growth and other problems in the rural sector, and registered less than 1 percent growth in 2001.

The external debt had ballooned during the Asian crisis, rising from less than one half of GDP in 1996 to 88 percent of GDP by the end of 2001. Domestic debt expanded as well, rising from 21 percent of GDP in 1998 to 80 percent in 2001, largely due to bank recapitalization and refinancing exercises.

Tourism inflows recovered from the impact of the financial crisis and political unrest in the country, but fell off after September 11. Protests and threats to foreigners by extremist groups had a negative impact on tourism.

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