Mon, 07 Aug 2000

Economists confident GDP growth to continue

JAKARTA (JP): Economists have expressed optimism that the upward trend in Indonesia's gross domestic product (GDP) would continue and they believe the GDP growth would reach between 5 percent and 6 percent, exceeding the official target of 3 percent to 4 percent.

Arif Arryman of the advisory group ECONIT said that GDP growth might reach 6 percent this year, providing the government improved its economic policies.

"I am confident that the current trend will be sustainable, and might even reach one to two percentage points above the 4 percent target," Arif told The Jakarta Post over the weekend.

He was commenting on the better-than-expected GDP growth in the second quarter of this year,

According to the Central Bureau of Statistics (BPS), the GDP grew by only 0.38 percent in the April-June period over the previous quarter, but the year on year growth rate reached 4.13 percent in the second quarter, surpassing the 3.5 percent market consensus.

According to BPS, the main contributors to the GDP growth were non-oil industries, the utility, construction and the service sector.

Arif said that the upward trend in GDP growth began after the fourth quarter of 1998 when Indonesia's economy bottomed out from its crisis.

He said that most industries in the real sector were already experiencing growth rates equal to their pre-crisis levels since the first semester of this year.

"This trend shows a natural growth in our economy," he said.

He said the "natural" growth was evident from the fact that the country's economy continued to grow despite inefficiencies in government economic policies.

Arif blamed the economic specialists in the Cabinet for its lack of coordination, which has hampered the implementation of economic reforms.

"Even without policy support from the government, our GDP might still reach a 4 percent growth rate this year," he said.

However, he warned that the absence of new investment threatened the sustainability of the GDP growth rate.

Contrary to the real sector, he said, the financial sector showed no signs of improvement with the banking sector still reluctant to channel their credits.

He said the economy must receive fresh investment to expand production capacity and meet raising consumer demand, which was one of the driving factors of the GDP growth.

New investment would allow manufacturers to operate at higher production capacities.

Otherwise, the economy would risk a supply shortage that would increase consumer prices, resulting in reduced consumer spending, he explained.

Economist Dradjad H. Wibowo at the Institute for Development of Economics & Finance (INDEF) shared ECONIT's optimism, saying the country's GDP might grow by 5 percent this year.

Dradjad said that Indonesia's economy bottomed out during the fourth quarter of 1998.

"When the economy reaches its lowest level, it will bounce back, no matter what you do to it," he said.

But he added that the low base, from where the economy started to pick up, made the GDP growth rate look impressive.

But Dradjad said that a sustainable GDP growth rate now depended on the inflow of investment.

Thus far, banks have loaned only between Rp 220 trillion (US$25 billion) and Rp 230 trillion, while their over liquidity reached around Rp 486 trillion.

"Nevertheless, we've achieved a record high savings of around Rp 700 trillion, which shows that banks have regained the public's confidence," he explained.

Coordinating Minister for the Economy, Finance and Industry, Kwik Kian Gie said the country's economy would not be effected by the upcoming MPR Annual Session.

He said that the local business community would continue its activities no matter what the political condition was.

"Those who worry are only foreign investors abroad, who have no experience in Indonesia - eager to enter but no courage to do so," he told reporters in Semarang, Central Java.

David Chang senior analyst at Trimegah Securities said he saw improving political conditions that would allow the country's GDP growth to sustain its upward trend for the rest of the year.

He said that MPR's Annual Session was a good opportunity for the government to create a better business climate that would help stabilize the rupiah.

"A positive outcome from the Annual Session would mean that our rupiah can stabilize so that interest rates will decline and then the economy can sustain its growth rate," he explained.

Chang further noted that the business community had refrained from parking their funds abroad, which indicated that their business confidence had already improved. (bkm/har)