Overheated economy in control<\/p>\n
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
\nsaid yesterday that concerted efforts to reduce the current
\naccount deficit and control inflation would serve to keep
\nIndonesia's economic overheating within safe limits.<\/p>\n
He said monetary policy priorities are controlling the current
\naccount deficit and inflation rate so as to maintain
\nmacroeconomic stability.<\/p>\n
"In the last few months, a number of indicators have shown
\nheartening signs," Soedradjad said during a panel discussion at
\nthe Indonesia Summit, a two-day business forum on the Indonesian
\neconomy.<\/p>\n
He said that since the third quarter of 1995, for example, the
\nnarrowly-defined money supply (M1) showed indications of slowing
\ndown.<\/p>\n
The narrow money supply, which grew by 16.1 percent in
\nDecember of last year, declined to 14 percent in February.
\nMeanwhile, the broad money supply, which reached its highest
\nlevel of 28.04 percent in November, also slowed down to 26.79
\npercent in February, but is still far higher than the 17 percent
\nindicative target stipulated in 1996\/97 budget plan.<\/p>\n
Bank credits, which reached their highest annual growth rate
\nof 27 percent in August 1995, dropped to 23.6 percent in February
\nof this year, also far higher than the indicative target of 16
\npercent.<\/p>\n
Soedradjad said that the annualized inflation rate also
\ndeclined to 8.6 percent in February, from 10 percent in the
\nprevious period. But it was still far below the target of 5
\npercent, despite the decline.<\/p>\n
"Compared with the inflation rate over the last two years,
\ndevelopments in 1995 were certainly an improvement," he told some
\n600 local and foreign business executives in the business forum.<\/p>\n
Speakers at the panel discussion included Coordinating
\nMinister for Economy and Finance Saleh Afiff and Minister of
\nFinance Mar'ie Muhammad.<\/p>\n
Soedradjad acknowledged that although indicators have shown
\npositive signs with regards to the cooling down of the economy,
\nthe growth rate of the broad money supply remains high.<\/p>\n
The high growth in the broad money supply was attributed to
\nthe rapid expansion of bank credits and foreign capital inflows,
\nhe said.<\/p>\n
"However, the inflows of the short-term foreign funds remain
\nstrong despite the decline in bank credits," he said.<\/p>\n
For the current fiscal year, he added, the growth of the broad
\nmoney supply was determined at 17 percent and that of credits at
\n16 percent.<\/p>\n
Soedradjad added that interest rate differentials of domestic
\nand international rates will be monitored closely to remain at
\nsustainable levels so that disruptions from capital flows could
\nbe more easily controlled.<\/p>\n
The government will also continue to improve regulations on
\noffshore commercial borrowings, including a better monitoring
\nsystem for borrowings by financial institutions and non-bank
\nprivate companies, he noted.<\/p>\n
Tight<\/p>\n
Minister Mar'ie reiterated that the government would continue
\nto maintain tight monetary policies to cool down the economy,
\nwhich last year grew by 8.07 percent against 7.48 percent in
\n1994.<\/p>\n
"Prudent fiscal policies are a pillar of the economy," he
\nsaid, adding that curbing the rapid surge in domestic consumption
\nand short-term offshore borrowings are priorities in the current
\n1996\/97 fiscal year.<\/p>\n
He said that the government would continue to speed up the
\npayment of high-interest loans in a bid to reduce the external
\ndebt burdens.<\/p>\n
In the current fiscal year, the government would prepay high
\ninterest foreign loans of around $625 million with the surplus
\nfrom the just-completed 1995\/96 budget.<\/p>\n
The prepayment will raise the total amount of the early
\namortized high interest loans in the last two years to around
\n$2.14 billion.<\/p>\n
The previous prepayment of the loans, with interest rates of
\nabove 9 percent, were financed by proceeds from the privatization
\nof state-owned companies PT Indosat, PT Telkom and PT Tambang
\nTimah, which are now listed on domestic and overseas stocks
\nexchanges.<\/p>\n
In his speech, Coordinating Minister Saleh Afiff said that all
\nexisting policies -- both in financial and real sectors -- would
\nbe optimized in curbing inflationary pressures and the widening
\ncurrent account deficit.<\/p>\n
"We can no longer rely on a single instrument to make up for
\nslack elsewhere," the coordinating minister said during the panel
\ndiscussion.<\/p>\n
He acknowledged that the current account deficit increased
\nsharply last year from the impact of a sudden surge in imports at
\na time when export growth was slowing down.<\/p>\n
On Monday, the government revised upward the estimate of the
\ncurrent account deficit for 1996\/97 to $8.7 billion from an
\nearlier estimate of $6.9 billion. The current account deficit was
\n$7 billion in the previous fiscal year.<\/p>\n
The revision was made following a significant increase in
\nimports in recent months.<\/p>\n
He said that excess demand pressures, which partly resulted in
\nthe surge of the current account deficit, are not surprising for
\nIndonesia's economy, which has experienced an average growth rate
\nof 8 percent for the past seven years.<\/p>\n
"But since overheating can affect confidence even before
\nserious strains emerge in the real economy, swift action was
\ncalled for," he said.<\/p>\n
The measures taken to combat overheating involve a combination
\nof fiscal and monetary restraints. Fiscal policy was tightened,
\nresulting in a Rp 3 trillion-plus (US$1.34 billion) surplus in
\nthe 1995\/96 state budget, which ended in March. (hen)<\/p>\n
Editorial -- Page 4<\/p>\n
Infrastructure -- Page 12<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/overheated-economy-in-control-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }