Economist questions 7.1% growth rate

Economist questions 7.1% growth rate

JAKARTA (JP): Indonesia's economy, affected by the
deterioration of most economic factors, is unlikely to grow at
the government's target of over 7.1 percent this year, economist
Kwik Kian Gie has said.

Kwik noted at the Jakarta Lawyers Club gathering here on
Thursday night that almost all economic factors are worsening and
could lead to economic instability.

The government, therefore, should now sacrifice its growth
target for the sake of cooling-down the already overheated
economy, he said.

"When the current account deficit is deepening and
inflationary pressures are so strong, we cannot be so greedy by
wanting high economic growth with everything out of control,"
Kwik told the gathering.

Indonesia has been plagued by high inflation rates during the
last five years, with the highest inflation among members of the
Association of Southeast Asian Nations except Vietnam.

Indonesia's current account deficit has also been growing over
the past three fiscal years. It grew from US$2.9 billion in the
1993/1994 period to $3.5 billion in the 1994/1995 fiscal year and
is projected to surge to $7.9 billion this fiscal year, which
ends in March.

If the government stubbornly pursues high growth this year,
the economic overheating will consequently continue, with a high
inflation rate, huge imports, increasing interest rates and a
growing current account deficit, Kwik said.

The government has acknowledged the overheated economy and is
committed to cooling it down. However, the government always says
that it, in spite of the cooling-down measures, may not sacrifice
economic growth, which is expected to help create employment.

Measures

Minister of Finance Mar'ie Muhammad said earlier this month
that measures to cool down the economy would include better
management of the inflows of foreign loans, limitations in the
growth of bank credits at 16 percent and the imposition of luxury
sales tax on imported goods.

The minister said the planned 1996/1997 state budget, which is
expected to balance at Rp 90.6 trillion (US$39.4 billion), will
also help cool down the economy. Although the budgeted spending
will grow by 16 percent from the current budget, it is still
contractive in nature because most of the spending will be
financed from tax revenues.

Kwik disagreed with Mar'ie's argument, saying that the
1996/1997 budget is expansive, providing an additional Rp 2.28
trillion to the money supply.

However, Kwik said, the expansivity of the 1996/1997 budget
plan will be overrun by Indonesia's deficit in its international
trade in the same fiscal year, which will cause a contraction of
some Rp 15.67 trillion.

Therefore, Kwik noted, investment, especially foreign direct
investment, will be the only source of growth.

He warned that foreign investors, who are currently still
pouring funds into Indonesia, may abandon the country if the
government is not serious in dealing with the worsening economic
factors. (rid)