Economists warn of over confidence
Economists warn of over confidence
JAKARTA (JP): Economists said on the weekend the upgraded
revision of the country's macroeconomic assumptions made by the
government and International Monetary Fund (IMF) were too
optimistic, and warned that economic recovery was not around the
corner yet.
Pande Raja Silalahi, an economist at the private think tank
Centre for Strategic and International Studies (CSIS), said the
positive economic development in the second quarter was not
enough to justify such an optimistic scenario.
He added that the country's political development in the run-
up to the upcoming November presidential election could still
undermine confidence and market sentiment.
"The new macroeconomic assumptions are too optimistic," Pande
told The Jakarta Post.
In a new Memorandum of Economic and Financial Policies (MEFP)
to the IMF, the government upgraded its macroeconomic estimate
for the fiscal year ending in March 2000.
The real Gross Domestic Product (GDP) growth is projected to
grow between 1.5 percent to 2.5 percent from an earlier estimate
of a flat growth.
The inflation rate is projected at between 4 percent and 5
percent, compared to less than 10 percent estimated in May.
"Growth prospects are benefiting from improving market
sentiment, higher agriculture income and recovering consumption
demand," the MEFP document said.
The document added market sentiment had improved markedly,
helped by the peaceful completion of the country's landmark June
7 general election.
"The GDP target is not something impossible to achieve, but
the chances are very slight," Pande said.
He said the economic growth recorded in the second quarter of
this year was not enough to justify the new GDP projection.
He added the consumption demand growth was primarily driven by
a speculative stockpiling behavior.
The economy grew by 1.82 percent in the second quarter of 1999
compared to the same period in 1998, prompting government
officials to declare the economic recovery was just around the
corner.
The economy contracted by nearly 14 percent last year as a
result of the country's worst-ever economic crisis in three
decades.
The improving outlook on inflation also prompted the IMF Asia-
Pacific director Hubert Neiss to predict that the central bank
benchmark interest should drop below a double digit level by
year-end.
But Pande said further significant cut in the interest rate of
Bank Indonesia one-month SBI notes was too risky for the rupiah.
"It's just the same as telling the rupiah to go overseas," he
said.
The benchmark interest rate is currently at slightly over 14
percent, compared to more than 35 percent at the beginning of the
year.
Noted economist Sri Mulyani of the University of Indonesia
warned of "overconfidence" because of the relatively still weak
fundamentals of the economy.
She also said the economic progress in the second quarter of
the year was not a guarantee that the economy had recovered.
She pointed out that there were still many weaknesses in the
economy and tough "homework" that needed to be done, including
the banking sector which had yet to function.
"There could be a possibility of a renewed crisis in the
region if China devalues its yuan, for instance. Then our economy
will tumble again because of the remaining weaknesses," she said.
"So don't be too proud because there are still many weaknesses
that need to be fixed," she added.
Both Pande and Sri Mulyani urged the government to be
consistent in implementing its various promises as contained in
the MEFP document, including plans to audit more state companies
which would help raise confidence in the economy.
"But what is more important are follow-up measures for the
findings," Pande said, referring to the audit results of state
oil and gas firm Pertamina, state electricity firm PT Perusahaan
Listrik Negara and state logistic agency Bulog.
He feared the government had instructed the audit to merely
please donor countries and institutions which gather in Paris on
Tuesday and Wednesday to decide on new loans for Indonesia to
help finance the current state budget deficit.
The audit result on Pertamina was leaked to the media recently
and revealed the company suffered some US$6.1 billion in losses
between 1996 and 1998 caused by corruption and inefficiency.
The government has yet to officially announce the audit
results on the above three state institutions.
"Their reports are currently being reviewed by the government
and the findings will be published by Aug. 31, 1999," the MEFP
document said.
It added the government would audit more state firms including
the national airline (Garuda Indonesia), toll road operators (PT
Jasa Marga), port corporations (PT Pelindo), and domestic
telecommunications firm (PT Telkom).
"This second round of audits will be completed by Dec.31,
1999," the document said. (rei)