Deficit warning sounded

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)

Cooperatives -- Page 10