Analysts predict buoyant growth in 1996, 1997
JAKARTA (JP): The Econit economic research group predicts buoyant 7.5 percent growth for 1997, despite the political and economic uncertainties that could emerge.
Growth will reach 7.3 percent this year, lower than the 8.1 percent recorded last year, Econit says, attributing the slow down to the government's efforts, including monetary contractions, to cool down the economy.
"All economic factors, both macro and micro, seem all right, and the cooling-off tendency will continue until the first semester of next year. If everything is okay, our economy will rebound in the second semester," Rizal Ramli, a director of Econit, said in announcing its Economic Outlook 1997 on Saturday.
The level of political uncertainty can be expected to increase next year and that it will very much influence the economic outlook, he said.
"If political uncertainty becomes political volatility and unrest, deviations and variance of economic outlooks will also be greater, and we must revise downward our growth prediction."
Next year's political uncertainty and anxiety will be influenced by sociopolitical factors, including the political dynamism expected toward next year's general election, he said.
"Social and political groupings will move to strengthen their political leverage before and after the general election, as well as before the creation of a new cabinet in 1998," Rizal said.
Econit managing director Arif Arryman said there will be a great deal of non-budgetary spending and increases in the government's routine expenditures to ensure that Golkar, the ruling political group, win the election.
"Like in any other country, the government usually uses an election-driven fiscal policy. That means increasing its budget prior to the general election to ensure the win of the ruling political group," Arif said.
Such non-budgetary spending and inflated routine spending will undermine the efforts to cool down the economy, he warned.
The World Bank and the International Monetary Fund have urged Jakarta to cool down its economy by reducing spending and thus producing a surplus in its budget by between 2 to 3 percent of gross domestic product.
Presidency
As for the country's presidency, Rizal said, Econit does not take a special view.
"Everybody knows that Golkar will win in next year's general election and the president will remain the same," he said.
Such a situation would bear specific uncertainty if something happened to the incumbent President Soeharto, because nobody knows who could replace him, he said.
Indonesia still relies on a personalized, not institutionalized, decision making process, in the political, economic or legal sectors; and this will increase the level of both political and economic uncertainties, Rizal said.
Political and economic uncertainties will influence the realization of foreign direct investment commitments. Some of the projects are very likely to be postponed, he said.
A delay in the realization of foreign investment projects would help reduce the country's imports. However, this could also reduce the government's capability to cover up the country's deepening current account deficit.
Indonesia's export performance will not improve significantly next year because of the strengthening of the rupiah against the U.S. dollar, Econit forecasts.
In addition, the supply response of Indonesia's exports to the improving economic growth in developed countries has proven to be slow, Econit said in its report.
Meanwhile, Indonesia's exports remain dependent on markets in developed countries, especially those in the Organization for Economic Cooperation and Development (OECD), as almost 60 percent of Indonesia's total exports of $45.4 billion last year went to the OECD countries. (rid)