Economists confident GDP growth to continue

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)