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)