Interest rates may decrease one point<\/p>\n
JAKARTA (JP): Interest rates will decrease by at least one
\npercentage point if there are no more policy errors in the second
\nhalf of this year, Rizal Ramlia, a senior researcher of the
\nEconit economic advisory group, predicted yesterday.<\/p>\n
"If there are no more policy errors or inconsistencies like
\nthe policy of the "national car", and if there are no political
\nsurprises, there will be pressure to reduce interest rates by at
\nleast one percentage point during the second half," Rizal said.<\/p>\n
Speaking before Leadership Forum XVII, organized by the Center
\nfor Corporate Leadership in cooperation with The Jakarta Post,
\nRizal said there was an indication that inflation was declining
\nand that banks had too much liquidity.<\/p>\n
During the first half of the year, inflation was negative in
\ntwo months -- down 0.61 percent in March and down 0.07 percent in
\nJune.<\/p>\n
"This indicates that the economy has started to cool off. This
\nis a good sign and I hope it will continue in the next half,"
\nRizal said.<\/p>\n
He warned, however, that if there were surprises "we may face
\na difficult situation".<\/p>\n
He said he did not agree with the Japanese delegation to the
\nrecent meeting of the Consultative Group on Indonesia (CGI), who
\nsuggested that Indonesia should take more drastic monetary policy
\nmeasures.<\/p>\n
"I didn't agree with them. The fact is that the monetary
\ncontraction being pursued by the government has started to work,"
\nhe said.<\/p>\n
He said that this contraction was being made gradually. It was
\nnot as extreme as the one which resulted from a policy introduced
\nby the minister of finance J.B. Sumarlin in 1991.<\/p>\n
Sumarlin had decided to withdraw over Rp 8 trillion (US$3.4
\nbillion at current rate) from the banking system to tighten the
\nmoney supply.<\/p>\n
"If the contraction was drastic, I think there would be more
\nvictims and many companies would face cash flow problems. In
\nfact, the current big loan problems were partly caused by drastic
\nmonetary policy in 1991," Rizal said.<\/p>\n
He said there had been no good signs regarding the country's
\nexport growth. Some important sectors of the Indonesian economy,
\nsuch as the electronics and pulp industries, have started to show
\nweaknesses.<\/p>\n
Growth sectors<\/p>\n
"Indonesia needs to find new growth sectors for the economy to
\nincrease its exports. But unfortunately, our minister (of
\nindustry and trade) is still busy handling the 'national car'
\ncase. He does not have any time to think of anything else, yet,"
\nhe said.<\/p>\n
Under the national car policy, the government awards tax and
\ntariff breaks to PT Timor Putra Nasional, a company controlled by
\nPresident Soeharto's youngest son Hutomo Mandala Putra. The
\ncompany is committed to producing cars with up to 20 percent
\nlocal contents by the end of its first year of operations, up to
\n40 percent by the end of its second year and 60 percent by the
\nend of its third year. The United States, Japan and the European
\nUnion have all protested the policy.<\/p>\n
"What worries me is not the 'national car' project itself. But
\nthe fact that it will occupy the minds of all of our policy
\nmakers, who might ignore the problems that we must address in
\nother sectors," Rizal said.<\/p>\n
He said it was encouraging to see that capital intensive
\nindustries, like petrochemical, steel and paper manufacturing,
\nwere starting to improve.<\/p>\n
Rizal was also concerned that most of the foreign investments
\napproved in the first half of this year were committed by
\nbusinesses orientated towards the domestic market.<\/p>\n
"This worried me because it will worsen our current account
\ndeficit," he said.<\/p>\n
Indonesia's current account deficit is estimated to increase
\nfrom $6.9 billion in 1995\/1996 to $8.7 billion in 1996\/1997. (13)<\/p>",
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