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)