Econit predicts economic recovery to take a year
Econit predicts economic recovery to take a year
JAKARTA (JP): The Econit Advisory Group estimates that
Indonesia's crisis-plagued economy will take at least a year to
recover despite the IMF-led bailout package.
Econit's director Rizal Ramli said here yesterday that new
reforms initiated by the government as part of the aid package
would cause a "monetary and fiscal contraction".
Economic reform would, in the short run, repress economic
growth, trigger inflation, cause unemployment and widen the
socioeconomic gap, he said.
However, Rizal said measures by the government to provide more
incentives to boost export-oriented companies would boost the
country's foreign exchange receipts.
The rise in export growth would, in the long term, stimulate
the domestic economy, which would then improve the unemployment
rate and people's purchasing power.
Rizal said Econit was optimistic that the Indonesian economy
would begin to recover by the end of next year if the reform
measures ran as expected.
Indonesia's sound economic fundamentals would help speed up
the recovery process, he said.
He said the sound fundamentals were indicated by the country's
current account deficit of 4 percent, relatively low inflation
rate and high import and export growth.
"Most importantly, Indonesia also has natural collateral in
its abundant oil and gas reserves, which are the world's largest
amount of resources," he said.
The natural resources would be a guarantee for investors to
place their trust in the country again, he said.
He said all economic indicators in the country were much
better than those of Thailand, whose financial crisis sparked
turmoil in other Southeast Asian currencies.
The Indonesian rupiah, Malaysian ringgit and Philippine peso
have dropped by between 20 percent and 40 percent against the
U.S. dollar due to speculation attacks sparked by the Thai
crisis.
The Indonesian government has either delayed or rescheduled
state-related projects worth US$38 billion to cope with the
currency crisis, with the rupiah's value plummeting by more than
30 percent against the dollar since July.
The government also announced last week financial and fiscal
measures to support the $23 billion in financial aid arranged by
the International Monetary Fund.
Econit estimates that the retrenchment program, in addition to
the government's credit crunch policy, will cause economic growth
to decline to 6.1 percent this year from the initially predicted
7.5 percent.
The rate would further sink to 5 percent next year, assuming
that all IMF conditions and structural adjustments proceeded
smoothly, the consulting group predicted.
Other economists have predicted that economic growth could
slump to below 2 percent next year.
Rizal said the slowdown in economic growth would be caused by
lower private consumption growth, which had been the catalyst of
economic growth in the past.
Private consumption was estimated to plunge to 5.8 percent
this year from 12.2 percent last year. Next year, it was
estimated to drop to 3 percent, he said.
A decline in foreign and local investment as an impact of the
credit crunch policy would also cause lower economic growth.
Rizal said construction, financial and manufacturing sectors
would be among those hardest hit.
He said inflation this year would be about 11 percent, because
of the inflation of imports and interest costs, and the long
drought.
Rizal said the economic policy adopted by the government in
fighting the financial crisis was similar to that introduced by
Japan in dealing with its economic crisis from 1974 to 1981.
The move strengthened Japan's economy and currency, he said.
(das)