7% growth predicted for 1996

7% growth predicted for 1996

JAKARTA (JP): Foreign and local economists estimated yesterday
that Indonesia's economic growth would continue to exceed 7
percent next year, despite the widening current account deficit.

Andrew Freris, an executive of the Hong Kong arm of the United
States-based Solomon Brothers, estimated that Indonesia's gross
domestic product (GDP) would likely grow by 8 percent next year,
as compared with the 7.5 percent growth estimated for this year.

He warned, however, that the widening current account deficit
would pose a stronger pressure to the country's economy if no
measures were taken to boost exports and to limit imports.

Freris estimated the current account deficit would increase to
US$5 billion this year, accounting for about 2.6 percent of GDP,
from the estimated $3.1 billion in 1994.

"Although the deterioration in the current account is far from
a crisis point, it is, nonetheless, worrying," he told executives
in a presentation on the 1996 economic outlook of the Economic,
Trade and Industry (Econit) advisory group.

Freris, the investment bank's director and chief regional
economist, was reluctant to give his estimate on next year's
current account deficit.

"I will be surprised if the number of the current account
deficit will be below $5 billion," he said.

Freris estimated that the inflation rate would likely decline
to 7.5 percent in 1996 from the estimated 9 percent this year.

Rizal Ramli, Econit's managing director, said that the
widening current account deficit would become a major pressure on
the country's economy next year.

Unlike Freris, he forecast that the current account deficit
would more than double to $6.4 billion this year from the
estimated $3.1 billion in 1994.

The signs of overheating in the country's economy would
continue and the current account deficit would further widen to
about $7 billion next year, Rizal said.

Even though Rizal's economic outlook for 1996 was less
promising, he put the estimate for economic growth at above seven
percent.

"Economic growth will reach 7.3 percent next year on the
condition that the high current account deficit does not become a
problem," he said.

He projected that the economy would grow by 7.5 percent this
year.

Rizal said that the small decline in the GDP growth would have
no significant impact on the country's overall economic
activities.

Investment

Freris said that the realization of foreign investment
commitments in 1995 and in the previous years would have a
positive impact on the current account deficit.

Although the inflow of capital from the realization of foreign
direct investments would not be very significant, its impact on
the balance of payments would be positive, he said.

The upbeat outlook on the economy would keep the domestic
stock exchange attractive, he said, adding that the prospects for
1996 would be enhanced if domestic interest rates fell.

However, he said that the widening current account deficit
would cast a shadow over foreign portfolio investment, which now
accounts for between 60 percent and 70 percent of the trading
volume.

Like Freris, Rizal estimated the inflation would be checked at
below 10 percent next year.

The two economists shared the view that the rupiah had been
over-valued, making non-oil exports less competitive. They
suggested that the central bank accelerate the depreciation of
the currency to boost non-oil exports.

The growth of non-oil exports is estimated to increase by
about 16 percent this year from 12 percent in 1994, while imports
may increase by 18 percent in 1995.

Rizal said that exports of non-oil products are likely to rise
by 16 percent next year if the monetary authority takes no
measures to curb the over-valuation of the rupiah.

"If the government accelerates the depreciation of the rupiah,
the growth of non-oil exports could even reach 20 percent next
year," he said.

The value of the rupiah is floated in line with the
developments of a basket of the currencies of Indonesia's 10
major trading partners.

A source at the central bank said that the 4 percent
depreciation of the rupiah against the dollar this year will
maintain the competitiveness of the country's exports.

"The rupiah is still undervalued, according to our formula,"
the source said, adding that the competitiveness of the country's
products should not rely merely on the monetary instrument.

Measures should also be taken to improve the efficiency of
industrial activities, the source said. (hen)