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)