Economists upbeat on economic recovery

Economists upbeat on economic recovery

By Reiner S.

JAKARTA (JP) Despite the critical problems the country is
facing, economists said the economy would continue its recovery
process next year.

The Econit Advisory group expressed confidence that the
economy would grow by around 6 percent to 7 percent in 2001,
which is higher than the government's forecast of 5 percent as
stated in the 2001 state budget.

"The economic growth will be pushed by almost all sectors in
the economy," said Econit managing director Arif Arryman when
launching the latest economic outlook report.

"The supporting environment for economic recovery in 2001
perhaps is the best that we can expect," he added, pointing out
that the strong 4.2 percent world economic growth in 2001 and the
further expansion in the coming years would bode well for the
domestic economy.

Econit said private consumption, exports, and investments
would continue growing, providing a strong foundation for the
country's future economic growth.

"Consumers will continue to shop, and they will continue to
increase their spending to provide a very strong foundation for
Indonesia's sustainable economic growth," said Econit, which was
cofounded by the Coordinating Minister for the Economy Rizal
Ramli.

"From the supply side, the output gap is still relatively
high, providing a greater room for further economic expansion, at
least until 2001," it added.

Econit projected that growth in private consumption would
remain high at 3.5 percent in 2001, net export to grow at 11
percent, while investment would grow by 14 percent, lead by
residential investment in the property sector.

"Foreign direct and portfolio investments are expected to
start to grow in line with the shift in global investment into
the emerging markets, although the growth would not yet be
significant," it added.

Meanwhile, Danareksa Research Institute forecast the economy
to grow by around 4.3 percent in 2001.

"A 4.3 percent growth is actually quite okay considering that
this comes from a high base," said Danareksa's Raden, pointing
out that this year the economy was expected to grow by 4 percent
compared to a low base of 0.3 percent growth in 1999. The
government estimated growth this year at 4.5 percent.

Raden said the major source of growth next year would still
come from the export sector, which is forecasted to grow by 15
percent compared to the estimated 20 percent growth this year.

He said the export sector would also become a source of
investment because exporters had to reinvest part of their export
earnings in order to maintain demands from overseas.

Minister of Trade and Industry Luhut Pandjaitan said the
country's export revenue this year would reach around US$48
billion, which is already beyond the target.

But he admitted that around 60 percent of the export revenue
has been parked overseas. He said the government would continue
persuading exporters to repatriate their earnings. He did not
provide details.

Raden said the construction sector would also start to grow
next year by around 5 percent, including the construction of
buildings and plants by manufacturers who export most of their
products.

"Construction will be the second source of growth next year,"
Raden said.

He said that investment would be the third source of growth.

Raden noted that investments would come from the exporters,
companies which had been restructured, and from foreign
investors.

Foreign investment will come mainly through the purchase of
various bank assets under IBRA, according to him.

"The trigger for the entry of foreign investment will be from
the sale of Bank Central Asia (BCA) and Bank Niaga," Raden said.

The government plans to sell the majority of its ownership in
BCA and Bank Niaga some time in the first quarter of 2001. The
plan to sell the two banks was supposed to be realized late this
year, but it was cancelled due to weak market sentiment. The IMF
and the World Bank have been displeased by the delay.

But Raden said the consumption growth would not be significant
next year because it had already grown quite high in 1999. He
said consumption in 2001 would likely to only grow by 2-3
percent, which is equal to the estimated growth for this year.

On the government's fiscal deficit of up to 3.7 percent of the
gross domestic product in 2001, Econit said this should not be a
concern because exports, investments and private consumption
would push the country's economic growth in the year.

"It is a pity the government tends to be pessimistic about the
economic growth because of the state budget constraint.

The economic growth of 6-7 percent is very much possible to
happen," it said, pointing out that the government only
forecasted the 2001 economic growth in the state budget at 5
percent.

"Although the government is facing a severe budget constraint,
the fiscal policy will still be feasible, because of foreign
loans and the expected higher tax revenue," it added.

Econit said what remained a concern was the performance of the
rupiah and stocks.

"The fate of the rupiah until now is still uncertain," the
consultancy firm said.

The rupiah has been hovering at around Rp 9,500 per dollar
early this month, which is more than a 25 percent drop from its
level early this year. The government has assumed an exchange
rate of Rp 7,800 per dollar in the 2001 state budget.

"The Jakarta Stock Exchange composite index is also not a
picture that can represent the Indonesian economy which is
experiencing strong growth," it added.

The firm explained that the performance of the rupiah and
stock market had been disappointing due to the perception of
domestic political instability. But it said the two economic
indicators did not represent the real domestic economic
condition.

On the outlook for the monetary condition in 2001, Econit said
if the condition of the world economy next year could allow
Indonesia to have a higher export growth, the domestic monetary
condition was expected to be quite conducive for the country's
economic recovery.

It said the rupiah in the longer run would strengthen to
around Rp 8,000-Rp 8,500 per dollar, inflation in 2001 was
projected to reach 6-8 percent, and bank lending credit at
between 18 percent and 23 percent.

"The Bank Indonesia policy in 2001 will tend to be
contractive, particularly if the rupiah is under pressure. But
the central bank is expected not to change its policy radically
in 2001," it said.

Inflationary pressure this year has been high due to a
combination of various factors, including the recent increase in
fuel and electricity prices, salaries increases, the weakening of
the rupiah and the increasing consumer demand in anticipation of
the year-end festivities. Inflation this year may reach 9-10
percent compared to the government revised target of 8 percent.

Danareksa's Raden said the plans by the government to raise
fuel prices again in April 2001 had created an announcement
effect to inflation this year. He said this would allow the next
fuel price increase to only have a minimum impact on inflation in
2001, which he forecast could reach 7-7.5 percent.

Raden said the interest rate of the Bank Indonesia SBI
promissory notes was projected to reach 10-12 percent next year,
which is almost in line with the government assumption of 11.5
percent. The SBI rate is currently hovering at 14.32 percent.
But Raden said the lower inflation level in 2001 would help
reduce the interest rate.