Economists upbeat about 1995 outlook

Economists upbeat about 1995 outlook

JAKARTA (JP): Prominent macroeconomic analysts are predicting a brighter outlook for Indonesia's economy next year, with the manufacturing and construction sectors continuing to play dominant roles in the Gross Domestic Product (GDP) growth.

Rizal Ramli of the Econit advisory group puts next year's GDP at 7.2 percent, as compared to the projected seven percent for this year.

Marie Pangestu of the Centre for Strategic and International Studies (CSIS) and Sjahrir of the Economic and Financial Research (Ecfin) believe growth rate will reach seven percent.

The three economists, however, warned that the increase in imports of capital goods resulting from the increase in new investments would further widen the current account deficit.

Rizal put the possible increase in bad loans in the property sector, the "price erosion" in non-oil exports and a possible increase in the current account deficit on the watch list yesterday.

The increase in bad loans in the property sector could prompt private banks to increase their interest rates. This would curb domestic demand and slow down business activities, he said of the impact of the increase in bad loans in the property sector.

Around 40 percent of private bank loans are concentrated in the property business. A further rise in bad loans would have a negative impact on the overall business sector.

Exports

Rizal said the price erosion of non-oil exports is another important factor that should be carefully watched by both the government and businessmen.

"We have to improve the competitive edge of our manufacturing goods in order to be able to survive the fiercer competition on the overseas markets," he said.

The increase in imports of capital goods resulting from the projected sharp increase in both domestic and foreign investments could severely hurt the current account deficit. "It means that the central bank should be extra careful in managing its reserves," he added.

Marie, the chief economist of the CSIS, said the economic recovery in industrialized industries, such as Japan and the United States, and the stronger domestic demand would further encourage the country's manufacturing sector.

The expected recovery in the agricultural sector, which suffered a setback in 1993 and this year due to the prolonged drought, is another important factor in the 1995 GDP growth.

Marie estimated that non-oil exports would still grow despite the fiercer competition, but that their growth would remain lower than in the previous three years.

"The balance of payments will, therefore, receive a stronger pressure next year as imports will likely grow faster, while exports will remain flat," she said.

She also predicted the increase in the capital inflow resulting from the increase in foreign investments could minimize the impact of the estimated increase in imports.

The government estimates current account deficit will reach US$3.2 billion in the 1994-1995 fiscal year as compared to $2.9 billion in 1993-1994.

Sjahrir, the managing director of the Ecfin, said the economy will grow by seven percent on the impact of the improvement in the agricultural sector.

The agricultural sector is expected to recover next year, he said.

"If that happens, the recovery will be able to prop up the GDP growth to 7.2 percent even though there is a stagnation in other sectors," he said. (hen)