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.