Economy expected to reach sustainable growth in 1998

JAKARTA (JP): Indonesia's economy will start recovering this year and reach a sustainable growth in 1998 -- about a year behind most developed countries in the Asia-Pacific region, noted economists predict.

Suhadi Mangkusuwondo, a member of the Indonesian National Committee of the Pacific Economic Cooperation Council (INCPEC), said the one-year lag of Indonesia's economic recovery was because economic developments in Indonesia followed trends in Japan and the United States.

"Indonesia and several other developing countries will experience this lag," he said at a press conference at the Centre for Strategic and International Studies (CSIS).

Yesterday's conference was also attended by economists Mari E. Pangestu of CSIS, and Miranda W. Goeltom. Goeltom and Suhadi are coordinators of INCPEC's Pacific Economic Outlook, an annual short-term forecast of 20 East Asian, North American and Latin economies.

Suhadi, quoting the report, said most Pacific Rim economies were expected to have a slightly faster economic growth this year and next year -- marked by low inflation rates -- following a "soft landing" in 1995 and a recovery last year.

Indonesia's 1994 economic growth stood at 7.5 percent and increased to a high 8.2 percent in 1995. It slowed to 7.8 percent last year. The report predicted economic growth this year at 7.3 percent.

"The soft landing was achieved ... in 1995, the recovery in 1996, and the forecast for sustained growth in 1997 and 1998 reflects the strong macroeconomic fundamentals and enhanced economic management capabilities in most of the region," he said.

Indonesia, however, achieved a soft landing last year, after it went through rapid growth in 1995 which caused an overheating of the economy.

"For Indonesia, the recovery will only start this year and sustained growth can be achieved next year and, hopefully, continue into 1999," he said.

Miracles

He said the soft landing experienced by most countries in the Asia-Pacific, beginning in 1995, was not an indication of a collapse of the "East Asian economic miracles".

Suhadi said the report predicted Indonesia's economic fundamentals would continue to grow strongly, led by rapid investment activities by domestic and foreign investors.

"Indonesia will continue its investment-led growth," he said.

In 1994, he said, investment contributed 48.3 percent to the country's gross domestic product (GDP). In 1995, the figure was 47.2 percent and last year it was 45.6 percent.

Net private capital inflow in the 1994/1995 fiscal year reached US$4.6 billion, increasing to $11.7 billion in 1995/1996 and was estimated to reach $11.8 billion in 1996/1997.

Suhadi said the World Bank ranked Indonesia the third largest receiver of private capital last year after China and Mexico. Total private capital inflow to developing countries last year was $343.8 billion.

Despite Indonesia's bright outlook, Suhadi said that several problems still loomed. These included the increasing current account deficit, which he said might reach between 4 and 4.5 percent of GDP this year.

Suhadi's prediction is very similar to Bank Indonesia's (central bank) projection which foresees the current account deficit reaching $9.8 billion this (1997/1998) fiscal year (ending next March), or 4 percent of the country's GDP.

In the last fiscal year it stood at $8.8 billion, up from $7 billion in 1995/1996.

Suhadi said other problems to be tackled were the need to maintain monetary stability and to continue economic reforms.

"It seems that deregulations are rarer, while they are still needed to eliminate the distortions that still prevail," he said.

He said non-economic aspects that the government should be wary of included social and political stability, which would affect the investment climate.

"This is a very important factor because Indonesia is basically an investment-led economy," he said.

Suhadi said the government should also make sure that economic reforms were supported by everyone.

"Some people might not like (economic reform) and could even be against it," he said. (pwn)