Tighten your budget as the crisis sinks deeper<\/p>\n
What are the prospects for Indonesia's economy in this new
\nyear after a prolonged monetary crisis last year? Economist Mari
\nPangestu discusses the issue.<\/p>\n
Question: Since the start of the monetary crisis in July the
\nrupiah has lost more than 50 percent of its value against the
\nU.S. dollar. Will this help boost Indonesia's exports in 1998?<\/p>\n
Mari: The rupiah depreciation, which lowers production costs
\nin terms of dollars, will surely increase the competitiveness of
\nthe country's exports, particularly those with low import
\ncontents. However, the tight liquidity supply resulting from the
\nmonetary crisis could affect the cash flow or working capital of
\nsome companies, which then may find difficulties in benefiting
\nfrom such export opportunities.<\/p>\n
Q: The rupiah's value, which plunged below 6,000 to the U.S.
\ndollar recently, is now hovering at about 5,000. What is the
\nsound level of the rupiah?<\/p>\n
M: The current value of the rupiah on the spot market is too low.
\nThe equilibrium value, based on various methods of calculation,
\nshould be around Rp 3,500 to the dollar, with a maximum level of
\nRp 4,000.<\/p>\n
Q: Do you think the country's export development will contribute
\nto the country's current account payments?<\/p>\n
M: During the first nine months of this year alone, the country
\nsuffered a current account deficit of US$8 billion. This level
\nshould be all right if the economic condition was normal, but it
\nis burdensome since the economy is in a crisis. However, 1997's
\ncurrent account deficit by December was estimated to be less than
\nthat because imports were decreasing in the last few months.<\/p>\n
In this year, the current deficit should decline if the
\ngovernment, now implementing a reform package under the auspices
\nof the International Monetary Fund (IMF), succeeds in checking it
\nat a maximum of 3 percent of the country's gross domestic product
\n(GDP).<\/p>\n
(According to the official note of the government's 1997\/1998
\nbudget plan, GDP was recorded as Rp 474.63 trillion -- $90.9
\nbillion at the current rate -- as of March 1997.)<\/p>\n
Q: Do you think capital inflows will offset the current account
\ndeficit in the country's balance of payments?<\/p>\n
M: I think the balance of payments was OK in 1997. But in 1998,
\nwe will probably need IMF funds to offset possible declines in
\nthe inflow of capital. We have usually needed only about $5
\nbillion in aid to balance our (international) payments, so we are
\nlikely to need around $10 billion to $11 billion in 1998.<\/p>\n
We can only expect the return of private investments to the
\ncountry if the results of the March convention of the People's
\nConsultative Assembly (MPR) help improve the investment climate.
\nHowever, capital inflows will be expected only from the United
\nStates and European countries and from the return of investments
\nwhich have left the country during the monetary crisis. We can no
\nlonger expect an ample inflow of investments from Japan and South
\nKorea, which are now also facing economic problems.<\/p>\n
Q: How do you see economic growth in 1998?<\/p>\n
M: The economy should have grown by 5.5 percent in 1997 on the
\ngrounds that it had expanded by 6 percent during the first
\nsemester of the year -- one month before the start of the
\nmonetary crisis.<\/p>\n
In 1998, the economy is expected to grow by 3 percent on the
\ncondition that investor and public confidence can be regained,
\nthe IMF-sponsored reform package is effective and banking
\ninterest rates decline.<\/p>\n
Q: Do you see that the currently unfavorable economic condition
\nwill affect the government's 1998\/1999 budget, which will be
\nunveiled by President Soeharto on Jan. 6?<\/p>\n
M: Sure. The government's tax revenue will decline in tandem with
\ndecreases in private sector profits, but its revenue from oil and
\ngas will likely increase due to rises in oil prices on the world
\nmarket and the sharp appreciation of the dollar against the
\nrupiah. But the increases in the oil and gas revenue will not be
\nable to compensate for the increases in debt services.<\/p>\n
The government's 1998\/1999 budget, therefore, will not be of
\nany help to the country's economic development.<\/p>\n
Q: The inflation rate slightly exceeded 10 percent for 1997. Do
\nyou see any improvement for prices in 1998?<\/p>\n
M: Inflation may reach 10 percent to 11 percent in 1998 since
\nthere will be sharp increases in food prices in the first two
\nmonths of the year and the government will most likely raise fuel
\nprices and electricity rates.<\/p>\n
Q: How about capital market development in 1998?<\/p>\n
M: The capital market will be the first economic institution to
\nrecover as investors will soon buy stocks at their current low
\nlevels, which could produce profits.<\/p>\n
Q: How will the economic crisis change the patterns of people's
\nspending and business trends?<\/p>\n
M: People affected by the rupiah's depreciation, decreases in
\nagricultural harvests due to the long drought and reductions in
\npay, will surely tighten their budgets, while companies will have
\nto consolidate themselves. Companies which have large debts will
\nhave to reduce activities or restructure their share ownership to
\ngenerate more capital. (riz)<\/p>",
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