A more robust year ahead
A more robust year ahead
An extremely long dry season, several natural disasters and
the explosion of the US$450 million loan scandal at the state-
owned Bank Bapindo notwithstanding, the Indonesian economy last
year proved to be performing better than most projections.
As mentioned by President Soeharto on New Year's Eve, the
economy grew by more than 6.2 percent, a figure deemed necessary
for the first year of the Sixth Five-Year-Development Plan in
order to sustain the ongoing economic development and accommodate
the yearly 2.5 million new entrants into the job market as well.
The inflation rate was rather high, but was eventually held
to below 10 percent. Non-oil exports were declining in the first
few months, but recovered later on. Foreign exchange reserves
grew to an amount adequate to sustaining five-months's worth of
imports.
Looking ahead, the economy seems to be in for even more
robust expansion, at least in the eyes of most economists setting
out their views in this paper last week. Their estimates for the
1995 growth rate vary between a conservative 6.7 percent up to a
bullish 8.0 percent.
There are several reasons to be optimistic.
There has been an economic turnaround in the United States,
and the economies of Europe seem to be moving in the right
direction. World economic recovery is gradually taking hold in
all industrialized countries, lifting that group out of its worst
recession in the last two decades.
With the United States holding to a relatively solid growth
path of around 3.9 percent last year, followed closely by Canada
and the United Kingdom, and the Japanese economy seeming to have
passed the lowest point in its downturn, the Organization for
Economic Cooperation and Development had strong reasons when it
predicted last week that the economies of its 25 member countries
would likely grow by an average of 3.0 percent this year, up
slightly from an estimated 2.8 percent last year.
Despite some protectionist tendencies in the industrialized
world, the fact that the Uruguay Round of the General Agreement
on Tariffs and Trade was eventually ratified by most members last
year, paving the way for the creation of the World Trade
Organization which begins life this month, surely provides much
stronger ground for a growing world market.
What makes the external economic conjunctures more
encouraging for Indonesia is the fact that the world economy's
center of gravity has shifted to Asia. There is an estimate that
within the remaining years of this millennium, 40 percent of all
the new purchasing power created in the world will be in East
Asia. Even a small chunk of this potential, laid practically in
front of our door, would be more than enough to sustain a
respectable 7.0 percent growth rate for Indonesia this year.
Domestically, potential for a robust growth can be presumed
first of all from the fact that the new tax laws, which go into
effect with a lower rate this month, will mean a boost in
disposable incomes. A resulting strong growth in fixed
investments and consumerism should provide this country with a
larger productive capacity to make for a lower cost per unit,
benefiting domestic consumers, as well as making it more
competitive in the world market.
Some economists expect the agricultural sector, which
contributes around 18 percent to Indonesia's GDP, to recover
strongly this year from a mere 1.5 percent growth last year. This
should be supported by some expected significant improvements in
the banking industry, after last year's loan scandals, and strong
growth in several other sectors like manufacturing, mining,
electricity and telecommunications.
In short, an overall higher growth rate for the country's
economy this year is strongly probable.
Some words of caution are warranted though.
First, all of the potential cited above relies heavily on
the role of the private sector. This is as should be expected
because of the results of the ongoing restructuring of the
Indonesian economy over the last decade: to make the economy less
dependent on oil, to pursue an economic development with less
reliance on foreign aid, and to build a competitive economy in
this fast changing world.
And what this boils down to is a few but-seemingly-harder-
to-get conditions: further deregulation measures and more
substantial efforts to reduce the high-cost structure of the
economy. Setting up new tariff and/or non-tariff barriers to
protect certain industries certainly is not in line with those
conditions. Neither is the maintaining of still so many
monopolies and oligopolies, which are contradictory to our own
commitment to free trade as signaled from Bogor last November.
Second, special attention is needed to protect the poor and
underprivileged members of this country. Without any special
treatment, they will be more helpless and disadvantaged in the
increasingly competitive future.
Both aspects have been hinted at through last week's cabinet
meeting. President Soeharto signaled an austere 1995-1996 state
budget, which means among other things a greater contribution
from the private sector to sustain Indonesia's economic
development. At the same time he promised to increase spending
for the underprivileged through programs like the Inpres Desa
Tertinggal.
We have strong reasons to be optimistic, but on the other
hand we need to follow up consistently in order to make it
happen. With this commitment, we wish all of you a very happy New
Year.