1997 growth predicted at 7.9%

JAKARTA (JP): State Minister of National Development Planning Ginandjar Kartasasmita said Saturday the country's economy would improve slightly next year after losing ground this year.

The minister said the growth rate would rise to 7.9 percent from the 7.6 percent estimated for this year, but would be far short of the 8.1 percent recorded in 1995

Speaking on a panel discussing the country's economic outlook organized by Golkar's central board, Ginandjar said the growth in gross domestic product (GDP) next year would partly result from a strengthening world economy.

He said the higher economic growth expected in industrialized nations, particularly Japan, would be an important incentive for exports.

"We expect our exports to increase from the improving world economy," Ginandjar said.

He was optimistic investment next year would also increase, exceeding this year's growth of 11.1 percent, while dismissing predictions that a warming political atmosphere during the general elections next year would scare foreign investors.

Ginandjar, also chairman of the National Development Planning Board, said he was confident that next year's inflation rate could be reduced to 6 percent so long as rice production exceeded this year's output: Unhusked rice production is estimated at 51 million tons.

Accumulated inflation for the first 11 months of this year is 5.92 percent, compared with 7.85 percent for the same period last year.

The minister said he was sure the inflation rate would decline to 6 percent next year from 8.64 percent last year so long as the country's important commodities were better distributed.

Bank Indonesia (central bank) Governor J. Soedradjad Djiwandono earlier predicted economic growth would slow next year, but remain above 7 percent.

Mari Pangestu of the Centre for Strategic and International Studies estimated 7.6 percent growth for 1997 and 7.5 percent growth for 1996.

Other economists have estimated GDP growth to be between 7.3 percent and 7.5 percent this year, and between 7.5 percent and 7.9 percent next year.

University of Indonesia's professor of economics, Dorodjatun Kuntjoro-Jakti, said the national economic slowdown would continue next year.

Dorodjatun said this would result from G-7 members' lower GDP growth, and the government's policy to further curb M2 (domestic liquidity) growth to fight inflation.

Although he expected tight liquidity, he predicted interest rates, particularly deposit rates, would fall because of rising capital inflows.

Dorodjatun said Bank Indonesia's decision to increase the reserve requirement from 3 percent to 5 percent from April next year would be a major cause of the slowdown.

"It seems that Bank Indonesia will focus its policies on keeping inflation down at 5 percent and not on managing the rupiah to the dollar exchange rate," he said.

Dorodjatun said there would be a small trade surplus next year because of the large surplus expected in oil and gas trade. But the current account deficit would continue to rise because of increasing imports.

Similarly, Ginandjar said that although the balance of trade would improve next year, the current account deficit would be larger than the US$8.7 billion estimated for the 1996/1997 fiscal year.

He said the current account deficit would continue to pose a "problem" for Indonesia.

"Domestic savings are insufficient to finance investments, and imports of goods and services are still larger than exports," he said.

Ginandjar predicted the trade surplus would continue declining until 2000.

"This can already be seen from the increasing deficit in non- oil and gas trade since 1995," he said.

He said the high trade deficit in non-oil and gas products, particularly manufactured goods, was caused by the country's uncompetitiveness.

"We lack competitiveness particularly for capital-intensive products and commodities that require high skills... In fact, there are indications that our surplus is also declining for labor-intensive and natural resource-based products," he said.

Ginandjar said the current account deficit would reduce businesses' dependency on foreign loans, instead they would mobilize funds from stock exchanges and retained earnings.

"Companies that want to go public will have to be more transparent... The transition period between now and the 21st century is rapidly narrowing so a culture of transparency must be quickly established," he said. (04/pwn)