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)