Our external balance<\/p>\n
Pressures on the balance of payments remain a major challenge
\nto sustainable economic growth in Indonesia. According to
\nofficial projections for fiscal 1997\/1998 year, the balance of
\nnon-oil trade will, for the third consecutive time, end up with a
\ndeficit. Even if the overall trade balance -- including oil and
\nnatural gas -- will produce a surplus of US$5.4 billion, it will
\nnot give the government any more leeway to manage the balance of
\npayments.<\/p>\n
The problem is that the position of the balance of payments
\ndirectly influences monetary stability. President Soeharto did
\nnot exaggerate when he warned in his budgetary speech on Monday
\nthat the widening deficit in the current account (balance of
\ntrade in goods and services) should be curbed to preserve
\neconomic stability. The government expects the current account
\ndeficit to increase to $9.8 billion in the coming fiscal
\n1997\/1998 year from an estimated $8.8 billion in the current
\nfiscal year ending in March.<\/p>\n
As a percentage of the gross domestic product, the current
\naccount deficit will remain at 4 percent. This is quite
\nworrisome, even if other ASEAN countries such as Thailand and
\nMalaysia are suffering from worse ratios of between 7 to 8
\npercent. The most important difference, and one which makes
\nIndonesia's position much more vulnerable, is its huge foreign
\ndebts of more than $100 billion.<\/p>\n
Soeharto reaffirmed the urgent need to boost exports and curb
\nimport growth to check the current account deficit at a
\nmanageable level. But given internal constraints, such as a lack
\nof economic efficiency, and external ones, notably fierce
\ninternational competition, Indonesia can only set an export
\ngrowth target of about 14 percent this year. The target is
\nalready much higher than the estimated export expansion rate of
\n10 percent in 1996.<\/p>\n
The dilemma is that import growth can no longer be kept to as
\nlow as 7 percent as it was last year. Imports this year are
\nexpected to expand by at least 13.5 percent. Such import growth
\nis apparently the minimum level needed to support the export
\ngrowth target because the manufacturing sector relies heavily on
\nimported basic and intermediate materials.<\/p>\n
Holding import growth to below 10 percent this year would
\nreduce export capacity at a time when new investment projects
\nshould be implemented at a pace that will expand export capacity.
\nPast experiences have shown that large investments can have an
\nexpansive impact on export capacity within one to two years after
\nthe implementation of investment projects.<\/p>\n
The central bank introduced last week new incentives to
\nbolster exports in the form of rediscount facilities to suppliers
\nof export-related goods, specific producer-exporters and
\nexporting companies. It also lowered the discount rate on usance
\nexport drafts.<\/p>\n
These incentives will improve the competitiveness of exports
\nbecause they reduce pre-shipment finance costs. But the
\neffectiveness of the incentives will depend on how efficiently
\nand transparently they are provided. Businesses tend to be
\napprehensive about such incentives due to their past experiences
\nwith the wide gap between what has been decreed and actually
\nimplemented.<\/p>\n
Whatever the impact of the new export incentive, Indonesia
\nwill be forced to rely largely on capital flows to cover its
\nwidening current account deficit, at least in the next two to
\nthree years. But because a portion of capital flows usually
\nconsists of short-term, speculative capital -- in addition to
\nforeign direct investment -- monetary management will be made
\neven more difficult and complex.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/our-external-balance-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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