Cheap cars may push up current account deficit

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)