BI warns of deepening deficit<\/p>\n
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
\nyesterday expressed concern over the deepening current account
\ndeficit and high inflation.<\/p>\n
\"The increases in investment and consumption have propelled
\nimports that increase our account deficits,\" Soedradjad said in
\nManado, North Sulawesi, yesterday.<\/p>\n
The government projected that the country's current account
\ndeficit would reach US$6.9 billion for the current fiscal year,
\nas compared to $7.9 billion last fiscal year which ended on March
\n31.<\/p>\n
Some analysts forecasted that such high current account
\ndeficits would continue to plague the country for years to come.<\/p>\n
He noted that the increase in imports was driven by the
\nincreasing demand for imported raw materials and capital goods,
\nas a result of high foreign investment.<\/p>\n
The government last year approved $39.9 billion in foreign
\ninvestment, up from $23.7 billion in 1994. It said the
\nimplementation rate for commitments made by foreign investors so
\nfar reaches over 50 percent.<\/p>\n
State Minister of Investment Sanyoto Sastrowardoyo said
\nrecently he was confident that this year's foreign investment
\napprovals would reach last year's level.<\/p>\n
Soedradjad said such a high level of foreign investment had
\neased the government's burden in managing the country's deepening
\ncurrent account deficits.<\/p>\n
Besides, the government's management of current account
\ndeficits has been eased by other capital inflow in the forms of
\nportfolio investment, offshore loans and others.<\/p>\n
When there are continuously high current account deficits, it
\nis imperative for the country to maintain its macroeconomic
\nstability, the governor said.<\/p>\n
\"Macroeconomic stability is not something given, but something
\nto strive for. Therefore, we must continuously maintain it,\"
\nSoedradjad was quoted by Antara as saying.<\/p>\n
The governor called on other state institutions to take care
\nof the country's macroeconomic conditions because efforts by the
\nmonetary authority alone will not be enough. He added that the
\ncentral bank's main duty is nurturing and monitoring the
\ndevelopment of the banking industry.<\/p>\n
He said the banking sector is still dominant in mobilizing and
\nchanneling funds to the public to finance the country's economic
\nactivities.<\/p>\n
He revealed that banking loans to the public had increased by
\n160 percent during the last five years to Rp 253 trillion
\n(US$108.3 billion) as of last year from Rp 97 trillion as of
\n1990.<\/p>\n
Meanwhile, the mobilization of public funds through the
\ncountry's banking industry rose by 159 percent to Rp 215 trillion
\nas of last year from Rp 83 trillion as of 1990.<\/p>\n
\"These figures show that the performance of the banking sector
\nin providing financing facilities to support the country's
\ndevelopment is quite successful,\" Soedradjad said when officially
\ninaugurating the building of the central bank's Manado branch.<\/p>\n
In a related development, the Manila-based Asian Development
\nBank (ADB) projected yesterday sustained economic growth in
\nIndonesia, despite the threat of inflation and a growing current
\naccount deficit.<\/p>\n
The multilateral financial institution said in a new report
\nthat the Indonesian economy is already operating at a very high
\nlevel of capacity, and the government should address the
\nmacroeconomic concerns in a timely manner.<\/p>\n
\"Growth of the Indonesian economy in 1996 and 1997 is
\nprojected to be almost as strong as in 1995. Continued robust
\nconsumer demand and a high level of investment spending ... will
\nhelp to sustain high growth,\" the bank said in its Asian
\nDevelopment Outlook for 1996 and 1997.<\/p>\n
\"(However) the challenge faced by the government to manage
\nstable growth remains,\" it added.<\/p>\n
Gross domestic product was forecast to grow by 7.8 percent in
\n1996 and 7.7 percent in 1997. GDP was 7.6 percent in 1995, while
\ninflation, which was at 9.4 percent last year, was expected to
\ncool down to 7.5 percent this year and 8.0 percent next year due
\nto better harvest prospects.<\/p>\n
The current account deficit was projected to widen to $9.2
\nbillion in 1996 and to $7.9 billion for 1997. It jumped to $8.0
\nbillion in 1995 from $2.8 billion in 1994.<\/p>\n
\"(Further) In 1997, there will be continued pressures from
\nstrong private sector demand and because of the election in that
\nyear, from a more expansionary fiscal stance by the government,\"
\nit added.<\/p>\n
The study said fiscal prudence is required since the
\ngovernment is not likely to enact contractionary policies in
\ntimes of election.<\/p>\n
\"The main medium and long-term challenge facing the Indonesian
\neconomy in the context of an increasingly competitive and open
\nworld economy is how to ensure efficient and productive
\ninvestment,\" it concluded.<\/p>\n
\"Other than providing a consistent and transparent investment
\nclimate, a fair competitive environment also needs to be created,
\ncrucial physical infrastructure bottlenecks need to be
\nalleviated, and human resource development to increase
\nproductivity needs to be emphasized.\" (rid)<\/p>",
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