Cheap cars may push up current account deficit

JAKARTA (JP): An economist warned yesterday that the introduction of cheap cars on the domestic market, following the government's national car policy, was likely to encourage more imports and increase current account deficits.

Sri Mulyani I. Sumartono, an economist at the University of Indonesia, said yesterday that the sale of cheap cars was likely to boost the market for passenger cars in the near future.

"Hence it is expected that the market expansion will generate a greater current account deficit for the country," Sri told an auto seminar, conducted by the Indonesian Automotive Industry Association to coincide with the 9th Jakarta Auto Expo.

A number of local firms have introduced cheap cars to secure their market shares following the entrance of the duty-and-tax- free Timor sedan earlier this month.

The 1,500 cc Timor car, produced jointly by Timor Putra Nasional -- a company controlled by President Soeharto's youngest son Hutomo Mandala Putra -- in cooperation with Kia Motors Corp of South Korea, costs the public Rp 35.75 million (US$15,210); half the price of most Japanese cars in the same class.

PT Citramobil Nasional, controlled by Hutomo's elder brother Bambang Trihatmodjo, introduced its 1,500 cc Bimantara Cakra car at Rp 45 million (on the road cost) and its 1,600 cc Bimantara Nenggala at Rp 59.5 million.

Following Bimantara's move, PT Indomobil Niaga International, a subsidiary of the giant Salim Group, introduced the 1,600 cc Suzuki Baleno sedan which costs Rp 43.5 million (off the road). Indomobil also cut the prices of its Suzuki Esteem by Rp 5 million to Rp 35.9 million (off the road) for the 1,300 cc version of the car, and to Rp 39.9 million for the 1,500 cc version.

Unlike Timor Putra, neither Bimantara nor Indomobil get tax and tariff holidays from the government to supply cheap cars.

Sri acknowledged that the expansion of the auto market was necessary for the development of the local automotive industry. However, Indonesia's automotive industry is still too domestically oriented and too dependent on imported materials.

Indonesia has long suffered a lop-sided trade imbalance in the automotive sector. Imports of automotive products reached US$3.6 billion last year or about 10 percent of the country's total non- oil imports. Meanwhile, exports of automotive products were less than $250 million.

"The trend of current account deficits, which have already reached an alarming level, should caution both the government and private sector. Otherwise, Mexico's bad experience may happen here," Sri said.

Sri criticized the government's granting of tax and tariff breaks to Timor Putra without relating it to the export performance of the company.

"Since the reduction of (Timor's) price occurs artificially because of a government facility, the cost of the increasing demand for cars is born by the government," Sri said. (rid)