Economy will grow if Indonesia names president quickly

Economy will grow if Indonesia names president quickly

SINGAPORE (Dow Jones): The Indonesia economy could grow this
year if, contrary to expectations, the country selects its next
president quickly and returns to political stability, a top
economist for the Pacific Economic Cooperation Council (PECC)
said Wednesday.

More likely, uncertainty will linger in Indonesia until at
least late this year as the country goes through an unprecedented
and difficult period of coalition building, said the coordinator
of PECC's annual Pacific Economic Outlook Lawrence B. Krause. The
report was released Tuesday.

Krause, professor emeritus at the University of California,
San Diego, spoke from Washington in a video press conference
coordinated by the United States Information Agency.

Indonesia's landmark election held Monday "doesn't spell the
end of political uncertainty," he said. "Indonesia is just
beginning the transition to democratic institutions."

PECC forecasts the Indonesian economy will shrink by 2.5
percent this year, before growing by 3.7 percent in 2000. This
follows a 13 percent contraction in 1998.

Indonesians voted in parliamentary elections Monday with early
indications suggesting that opposition leader Megawati
Sukarnoputri's party holds a substantial lead. But only about 2.6
percent of the votes have been counted.

Once the vote is tallied, members of parliament and other
officials will meet to select a president and vice president.

Krause said a long period of uncertainty following Monday's
election is built into the forecast. He noted a president is
unlikely to be picked before November as the various political
parties try to work out a coalition.

"It's going to be difficult and time-consuming to put a
coalition together," he said. ""That's quite a long time for
political uncertainty."

If the presidential selection process proceeds far more
speedily than expected, Indonesia "could be in positive territory
this year," Krause said, but he warned against drawing
conclusions from the election too quickly.

"I think the opposition parties are strong, but I'm not sure
they will be in a dominant position," he said. "We're not really
ready to push Indonesia into (a forecast of) a moderate recovery
yet."

Addressing the situation in Japan, Krause said the government
has started to address the country's fundamental issues, but the
outlook remains cloudy.

After contracting 2.9 percent in 1998, the Japanese economy is
forecast by PECC to be stagnant this year, with growth of 2.0
percent predicted for 2000.

"Japan is a dilemma," Krause said. "I've never known a time
when there was more uncertainty about the Japanese outlook."

The biggest obstacle facing Japanese recovery is solving the
country's financial problems, Krause said, adding that optimists
point to the implementation of a permanent tax cut, low business
inventories and the general Asian recovery as good signs.

For Singapore, PECC forecast growth of 1.5 percent in 1999 and
2.0 percent in 2000, following a 1.5 percent increase in 1998.

Krause noted that Singapore is in the process of moving away
from a manufacturing economy toward a service economy and the
transition will take time.

Although the council's outlook includes the devaluation of the
Chinese yuan as a near-term risk, Krause said such a policy move
is unlikely unless it's preceded by a new round of regional
devaluations.

"I don't think China will devalue the renminbi, in part
because the other currencies in the region are still floating, so
they'd get no competitive advantage from it," he said.

A yuan devaluation would probably trigger other Asian
devaluations, wiping any gains that might have been made, he
said.