7% growth predicted for 1996<\/p>\n
JAKARTA (JP): Foreign and local economists estimated yesterday
\nthat Indonesia's economic growth would continue to exceed 7
\npercent next year, despite the widening current account deficit.<\/p>\n
Andrew Freris, an executive of the Hong Kong arm of the United
\nStates-based Solomon Brothers, estimated that Indonesia's gross
\ndomestic product (GDP) would likely grow by 8 percent next year,
\nas compared with the 7.5 percent growth estimated for this year.<\/p>\n
He warned, however, that the widening current account deficit
\nwould pose a stronger pressure to the country's economy if no
\nmeasures were taken to boost exports and to limit imports.<\/p>\n
Freris estimated the current account deficit would increase to
\nUS$5 billion this year, accounting for about 2.6 percent of GDP,
\nfrom the estimated $3.1 billion in 1994.<\/p>\n
\"Although the deterioration in the current account is far from
\na crisis point, it is, nonetheless, worrying,\" he told executives
\nin a presentation on the 1996 economic outlook of the Economic,
\nTrade and Industry (Econit) advisory group.<\/p>\n
Freris, the investment bank's director and chief regional
\neconomist, was reluctant to give his estimate on next year's
\ncurrent account deficit.<\/p>\n
\"I will be surprised if the number of the current account
\ndeficit will be below $5 billion,\" he said.<\/p>\n
Freris estimated that the inflation rate would likely decline
\nto 7.5 percent in 1996 from the estimated 9 percent this year.<\/p>\n
Rizal Ramli, Econit's managing director, said that the
\nwidening current account deficit would become a major pressure on
\nthe country's economy next year.<\/p>\n
Unlike Freris, he forecast that the current account deficit
\nwould more than double to $6.4 billion this year from the
\nestimated $3.1 billion in 1994.<\/p>\n
The signs of overheating in the country's economy would
\ncontinue and the current account deficit would further widen to
\nabout $7 billion next year, Rizal said.<\/p>\n
Even though Rizal's economic outlook for 1996 was less
\npromising, he put the estimate for economic growth at above seven
\npercent.<\/p>\n
\"Economic growth will reach 7.3 percent next year on the
\ncondition that the high current account deficit does not become a
\nproblem,\" he said.<\/p>\n
He projected that the economy would grow by 7.5 percent this
\nyear.<\/p>\n
Rizal said that the small decline in the GDP growth would have
\nno significant impact on the country's overall economic
\nactivities.<\/p>\n
Investment<\/p>\n
Freris said that the realization of foreign investment
\ncommitments in 1995 and in the previous years would have a
\npositive impact on the current account deficit.<\/p>\n
Although the inflow of capital from the realization of foreign
\ndirect investments would not be very significant, its impact on
\nthe balance of payments would be positive, he said.<\/p>\n
The upbeat outlook on the economy would keep the domestic
\nstock exchange attractive, he said, adding that the prospects for
\n1996 would be enhanced if domestic interest rates fell.<\/p>\n
However, he said that the widening current account deficit
\nwould cast a shadow over foreign portfolio investment, which now
\naccounts for between 60 percent and 70 percent of the trading
\nvolume.<\/p>\n
Like Freris, Rizal estimated the inflation would be checked at
\nbelow 10 percent next year.<\/p>\n
The two economists shared the view that the rupiah had been
\nover-valued, making non-oil exports less competitive. They
\nsuggested that the central bank accelerate the depreciation of
\nthe currency to boost non-oil exports.<\/p>\n
The growth of non-oil exports is estimated to increase by
\nabout 16 percent this year from 12 percent in 1994, while imports
\nmay increase by 18 percent in 1995.<\/p>\n
Rizal said that exports of non-oil products are likely to rise
\nby 16 percent next year if the monetary authority takes no
\nmeasures to curb the over-valuation of the rupiah.<\/p>\n
\"If the government accelerates the depreciation of the rupiah,
\nthe growth of non-oil exports could even reach 20 percent next
\nyear,\" he said.<\/p>\n
The value of the rupiah is floated in line with the
\ndevelopments of a basket of the currencies of Indonesia's 10
\nmajor trading partners.<\/p>\n
A source at the central bank said that the 4 percent
\ndepreciation of the rupiah against the dollar this year will
\nmaintain the competitiveness of the country's exports.<\/p>\n
\"The rupiah is still undervalued, according to our formula,\"
\nthe source said, adding that the competitiveness of the country's
\nproducts should not rely merely on the monetary instrument.<\/p>\n
Measures should also be taken to improve the efficiency of
\nindustrial activities, the source said. (hen)<\/p>",
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