ESCAP gives optimistic outlook for Indonesia

ESCAP gives optimistic outlook for Indonesia

JAKARTA (JP): The Economic and Social Commission for Asia and
the Pacific (ESCAP) has given Indonesia a relatively optimistic
economic outlook for this year.

ESCAP, a United Nations agency, projected yesterday the
country's economic growth would be minus 1.5 percent during the
1998/1999 fiscal year, far better than the government's
projection of minus 4 percent.

The agency also estimated in its report that the country's
inflation rate would be 22.5 percent for the fiscal year, much
lower than the government's projection of 47 percent.

It said the financial and currency crisis, which started in
mid-1997 in Thailand, had deepened and engulfed Indonesia over
the past few months, causing the country's economic outlook to
remain gloomy in coming years.

It attributed Indonesia's bleak economic outlook to a
persistent fall in the rupiah's value against the U.S. dollar,
dwindling foreign investment inflows, the halt of credit inflows,
a mounting inflation rate, high interest rates and low market
confidence in the country.

"The domestic cash flow crisis deepened and debt servicing
obligations on foreign currency denominated debts rose steeply as
the value of the rupiah declined rapidly," ESCAP said in the
report.

The rupiah has fallen 70 percent in value against the U.S.
dollar to about Rp 8,500 now, compared to a pre-crisis value of
Rp 2,450 last July.

"The economic growth will be affected by the need to maintain
high interest rates to stabilize the exchange rates," the report
said.

"Consumption and investment are both affected and conditions
were aggravated by the drought and haze enveloping a large part
of Indonesia in September and October last year."

The report said Indonesia was expected to suffer further
because of the adverse impacts of the El Nio phenomenon on
agricultural production this year.

"Even the most optimistic forecasts do not see Southeast Asian
economies, including Indonesia, regaining the dynamism achieved
in the first half of 1990 until after 1999," the report said.

The report said that one of the significant weaknesses of the
region's economy lay in widening current account deficits.

The current account deficits were funded by short-term loans
which were heavily invested in speculative property sectors.

The bubble burst when the oversupply in the property sectors
sent property values falling, causing a snowball effect leaving
banks saddled with bad loans.

"As a result, this has triggered the collapse of the stock
market and a crisis of confidence throughout the region," the
report said.

Indonesian economist Anwar Nasution, who introduced the report
to the media here in Jakarta, said yesterday that most short-term
loans owed by the country's corporate sector were used to finance
the development of non-trade sectors such as property, power and
toll roads in which politically well-connected business groups
had significant stakes.

"The use of foreign loans to finance those non-trade sectors
like property projects and toll roads have caused us trouble
now," Anwar said. (aly)