Deficit warning sounded

JAKARTA (JP): The current account deficit has reached an alarming level, senior economist Sumitro Djojohadikusumo said yesterday.

"We should therefore work harder to bolster exports while curbing import growth," Sumitro said after the Federation of Civil Servant Cooperatives' annual meeting.

He said the debt service ratio (export revenues against foreign debt service payments) was a danger signal because it had reached 32 percent.

"This means we should set aside one third of our total export revenue to repay and service debt. This condition is alarming indeed."

Sumitro suggested the debt service ratio be reduced to 25 percent in two years by increasing exports and curbing import growth.

Minister of Finance Mar'ie Muhammad told the House Budgetary Commission last week the current account deficit was $4.5 billion for the first semester (April-September) of the 1996/1997 fiscal year.

Most analysts have predicted the current account deficit would increase to up to 4 percent of gross domestic product this year from 3 percent last year.

Coordinating Minister for Economic and Financial Affairs Saleh Afiff forecast earlier the current account deficit would increase to $8.7 billion for 1996/1997, up from the $6.8 billion envisaged in the state budget.

But judging from the 1996/1997 first semester deficit, disclosed by Mar'ie last week, this fiscal year's deficit could be more than $9 billion.

Analysts have expressed great concern over the deficit's sharp increase because it happened in the first semester when oil and natural gas exports greatly exceeded the budget's expectations.

The state budget, which will end in March, estimates an average oil price of $16.50 a barrel for the current fiscal year. Actual prices in the first semester averaged $19.15 a barrel.

Despite the alarming current account deficit, Sumitro was optimistic on next year's economic outlook.

"Next year will still see economic growth between 7.5 percent and 8 percent," Sumitro said.

He said the declining inflation rate was encouraging.

"The inflation rate could be checked below 7 percent this year (compared to 8.65 percent last year)," he said.

He said the inflation rate could drop to between 5 percent and 6 percent next year, provided the government was consistent with its deregulatory reforms.

"Inflationary pressures are not generated by high bank interest rates but by illegal levies. Hence, don't blame the banks for the high inflation," Sumitro said.

He was convinced credit interest rates could decline by one to two percentage points next year if the inflation rate continued to drop.

Asked about partnerships between big and small enterprises, Sumitro said he doubted the program could work voluntarily.

"You cannot see it as a free gift of candies," he said.(vin)

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