APEC analysts predict slower growth for RI

By Meydiatama Suryodiningrat

VANCOUVER, Canada (JP): The Asia Pacific Economic Cooperation (APEC) forum predicted an optimistic 6.5 percent growth for Indonesia this year and 6 percent next year.

But the 1997 APEC Economic Outlook report noted that its high current account deficit had been one of the triggers which caused the financial crisis in Indonesia.

The Outlook, remains generally optimistic that the region would still prosper despite the economic woes.

The Outlook forecasts an overall sustained expansion for 1998 at a rate of 3.1 percent GDP growth for APEC economies, slightly down from this year's expected region wide growth of 3.4 percent.

The 122-page report was presented to APEC ministers during their meeting here on Friday by John Curtis, chairman of the APEC Economic Committee.

The Outlook in its chapter on Indonesia reduced its initial forecast for economic growth in 1997 from 7.1 percent to 6.5. Growth for 1998 was put at 6.0 percent.

It cited "spillover effects of the currency instability in the region as well as risks to outlook from the haze, which has curtailed tourist arrivals, and possible weather related reductions in agricultural output from the El Nio effect" as reasons for the lower growth.

Dr. Soogil Young, president of the Korean Institute of International Economic Policy which coordinated the research, said the "Indonesian economy is generally sound" and its financial sector had a history of being exposed to the international scrutiny and thus should be able to recover from the financial crisis.

The report noted that despite some decline private investment remains buoyant, reflecting a more conducive business climate following the adoption of various deregulation measures.

Imbalance

Among the major concerns cited by the report, is the high current account imbalances of many countries in the region, including Indonesia.

Eight economies -- Australia, Chile, South Korea, Malaysia, Indonesia, New Zealand, the Philippines and Thailand -- have current account deficits exceeding 3 percent of their GDP.

The Outlook points to large account imbalances as one important factors in the financial market instability experienced by some southeast Asian members.

John Curtis also pointed out that those being hit by the economic turbulence, Thailand, the Philippines, Malaysia, Indonesia and Korea, were the hardest hit.

In analyzing the instability the report stresses the importance of adopting sound macroeconomic policies to address the underlying causes of recent difficulties, including the need to strengthen financial sectors and increase transparency of economic and financial policies.

"Current account deficits need not be a problem, particularly in economies that are growing rapidly. If the capital inflows are needed to finance deficits and are underwriting an expansion of the productive capacity of the economy, current account deficits need not be associated with an increase in the difficulty of servicing foreign debt," the Outlook said.

Speaking on the prospective of the region, the report says that throughout the year there has been more than variability in growth.

It said that growth in North America APEC members was faster than expected but slower in many Asian states.