'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