'Current account deficit may rise to over $8b'

'Current account deficit may rise to over $8b'

JAKARTA (JP): Indonesia's current account deficit is likely to increase to more than US$8 billion next fiscal year due to the government's inability to further boost exports, economist Sjahrir said here Saturday.

"These deregulation and debureaucratization measures, I'm not sure they can help reduce the high current account deficit," Sjahrir told a seminar here.

Sjahrir warned that continuous increases in the current account deficit would weaken the rupiah value against major world currencies, especially the U.S. dollar, and consequently weaken the competitiveness of Indonesia's exports.

He said that the most fundamental solutions to the chronic problem of current account deficits will be creating clean governance and a good business climate.

As long as practices which distort market mechanisms, like monopoly, oligopoly and cartel-like practices, are still tolerated and the bureaucracy continues to be this corrupt, it is difficult for the government to tackle the high current account deficit, Sjahrir said.

The government projects that the current account deficit for the 1996/1997 fiscal year, beginning in April, will fall to $6.7 billion from the $7.9 billion estimated for this fiscal year.

To cover the current account deficit, the government expects capital inflows of $9.7 billion next fiscal year. Thus, the overall balance of payments will enjoy a surplus of $3.4 billion that year.

State Minister of National Development Planning Ginandjar Kartasasmita said last week that the annual current account deficit is projected to remain above $5 billion until the end of the current Five Year Development Plan period in 1996/1999.

However, because the country's economy is expected to grow by over 7.1 percent per annum, Ginandjar said, the current account deficit will remain at only about 2 percent of gross domestic product (GDP).

Sjahrir also warned Saturday that the sharp increase in private offshore loans will put additional pressures on the country's current account in the coming years.

He projected that private sector offshore borrowing will keep increasing this year due to the high interest rates and lucrative markets.

Central Bank Governor J. Soedradjad Djiwandono said recently that offshore commercial loans raised by the private sector had grown by over 300 percent, to US$7.3 billion last year from $2.3 billion in the previous year.

"By any measure, raising money overseas is currently much cheaper than raising it domestically. That's the problem," Sjahrir said. "While this situation continues, private offshore borrowing will keep increasing."

He warned that the servicing of both private and official offshore borrowings might reach $16.5 billion in the next fiscal year.

"The only way to maintain our economic stability is by increasing capital inflows through direct investment, portfolio investment, concessionaire loans and commercial loans," Sjahrir told journalists. (rid)

Editorial -- Page 4