BoP deficit projected at $0.7b in 1997
BoP deficit projected at $0.7b in 1997
JAKARTA (JP): Indonesia is expected to suffer a US$700 million
balance of payments (BoP) deficit next year, after enjoying a
projected $200 million surplus this year, a domestic report says.
The Institute for Development of Economics and Finance's
report, Indonesian Economic Prospects 1997, projects that net
capital inflows, including official loans, are likely to reach
$9.2 billion next year, up from $8.8 billion this year.
But the capital inflows will be too small to cover the
country's current account deficit, which is projected to reach
$9.9 billion next year, up from a $8.6 billion projection this
year.
"Next year could be a critical year for us, and the government
will do anything to cover the deficit. It may seek new loans,
issue bonds or use its stand-by loans," institute researcher
Faisal H. Basri said here yesterday.
He said capital outflows next year would be greater than
inflows because of increased political tension in the run up to
the general election.
Faisal would not predict the value of capital outflows next
year.
"It is a general phenomena here. When we had our general
elections in 1992, we saw s net capital flight of some $1.7
billion," he said.
The realization of foreign direct investment commitments is
expected to be weaker with many investors putting off their
projects until after the election.
But the institute's managing director, Didik J. Rachbini,
believes the government and the military will not tolerate
disturbances which could disrupt foreign investor confidence in
the country's economic and political stability.
The government, he said, had learnt from the July riots in the
city, which almost paralyzed the country's financial and capital
markets.
He predicted in the short-term that the government will
control economics, politics and other matters, and that it will
continue to try to cool the economy with its tight fiscal and
monetary policies.
But he criticized the government's fiscal and monetary
policies in cooling the overheating economy for not addressing
structural problems.
"Rather than just introducing a tight monetary policy, the
government should address fundamental problems in real life, such
as eliminating barriers in supply and strengthening our
industrial structure," Didik said.
Nonetheless, Didik commended the government's efforts to
reduce inflation even though they failed to reduce the country's
current account deficit.
The government has projected the inflation rate will be around
7 percent this year, down from 8.64 percent last year. The
institute, however, believes the actual inflation rate will be
much higher.
Economic growth
The institute projected that Indonesia will enjoy 7.8 percent
economic growth this year and 7.4 percent next year.
If the government loosens its monetary and fiscal policies,
next year's economic growth may be closer to this year's level or
just under last year's level of 8.1 percent.
Domestic demand, especially household consumption and
investment, is expected to drive the high growth rates, the
report said.
The institute forecasts that growth will slow in all sectors
except manufacturing, which is expected to grow some 11 percent
this year and in coming years.
The agricultural sector is projected to have the slowest
growth: 3 percent this year and 2.8 percent next year, down from
4.2 percent last year.
The construction sector's growth is to slow to 10.9 percent
this year and 10 percent next year, compared with 12.9 percent in
1995.
Growth in the services sector is also expected to slow,
especially in transportation and telecommunications services. But
the growth of financial and tourist services, including hotels
and restaurants, is expected to remain buoyant. (rid)
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