Growth prospects<\/p>\n
Both private-sector and government analysts as well as
\ninternational economists, including those of the International
\nMonetary Fund, remain optimistic that Indonesia's economy would
\nbe capable of expanding by at least 4 percent this year, despite
\nthe return of rupiah volatility and heated political tension in
\nthe runup to the People's Consultative Assembly (MPR) session
\nnext month.<\/p>\n
Economists from the Center for Strategic and International
\nStudies (CSIS) and most securities market analysts argue that
\nmost enterprises have adjusted themselves well to the rupiah's
\nzigzagging decline and to political woes. Bank Indonesia (central
\nbank) concurs, saying there is no need to revise its
\nmacroeconomic targets, as the currency volatility and political
\nuncertainty are only temporary phenomenon which would most likely
\ndiminish after the August MPR session.<\/p>\n
This prediction is indeed quite soothing news amid the great
\nconcern about the rupiah's steady depreciation since early May,
\nthat put the national unit mostly above Rp 8,500 against the
\nAmerican dollar over the past two months, compared to the Rp
\n7,000 average assumed for the April-December, 2000 state budget.<\/p>\n
The message of optimism, however, is not without pitfalls. A
\nlonger period of currency volatility would cast a shadow over the
\nsustainability of the nascent recovery, as the consumer-led
\ngrowth might peter out under a tight monetary policy. A
\npersistent zigzagging fall in the currency might also hinder the
\nfar-reaching corporate debt restructuring process that is so
\nvital for the reinvigoration of the real sector.<\/p>\n
A volatile rupiah makes debt restructuring much more complex,
\nas companies find it almost impossible to make sensible business
\nplans. Further delays in the resolution of the US$70 billion
\ncorporate foreign debt, and a similar amount in domestic
\ncorporate debts, would certainly hinder business operations and
\nslow the pace of banking recovery.<\/p>\n
Exports, which are expected to become another locomotive to
\neconomic recovery, might also be damaged as the huge debt
\noverhang would continue to deprive the business sector and
\ndomestic banking industry of an access to international
\nfinancing. After all, the present multidimensional crisis was in
\nthe first place triggered by the unmanageable level of foreign
\ncorporate debts and the financial distress of most banks.<\/p>\n
In fact, higher import costs as the impact of the weakening
\nrupiah, and the acute shortage of trade financing caused by the
\nslow progress in the corporate foreign debt resolution, seemed to
\nhave affected exports. Foreign trade statistics for May, as
\nreported by the Central Bureau of Statistics last week, indicated
\nthat though non-oil exports still expanded from a year earlier,
\nthey dropped almost 3 percent from April.<\/p>\n
The political situation within the next eight weeks could be
\nanother pitfall to a sustainable economic recovery. The market
\nsees vigorous, heated political debates as a normal process in a
\ndemocracy. But if the debates spill over to violent street
\ndemonstrations, exports might again suffer another blow as
\nforeign buyers, worried about delivery, might be prompted to
\ndivert orders to other countries.<\/p>\n
Another potential snag to the recovery process is a cabinet
\nreshuffle, which is strongly expected after the August MPR
\nsession. This move could make or break the credibility of the
\ngovernment.<\/p>\n
The market could also be roiled if the government is not
\ncapable of gaining the public's understanding about the sorely-
\nneeded increases in controlled prices of fuel oil and bus fares,
\nthat have to be effected later this year.<\/p>\n
The way local administrations, especially those in rich-
\nresource provinces, will react to the regulations on the inter-
\ngovernment fiscal relations, which are scheduled to be issued
\nwithin the next few weeks, will also determine whether the
\npolitical situation and investment climate in the provinces would
\nimprove or instead worsen.<\/p>\n
On top of it all, the progress in the restructuring of the
\nbanking sector is perhaps the most determinant to a sustainable
\nrecovery. Because not a single economy can sustain growth without
\na sound banking industry. The dilemma, though, is that the
\nbanking industry cannot grow healthily in a depressed economy.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/growth-prospects-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}