Experts give mixed forecast for 2002 consumption outlook

Experts give mixed forecast for 2002 consumption outlook

Berni K. Moestafa, The Jakarta Post, Jakarta

Hit by a plunge in export sales, Indonesia is relying on its only
other economic growth engine, consumer spending, but
analysts have produced a variety of forecasts on whether
consumption will remain strong enough next year to sustain
current economic growth levels.

The government said Indonesia's economy would maintain its
current growth rate, providing local consumption remained
bullish.

It estimated that the economy, as measured by its gross
domestic product (GDP), could maintain a growth rate of up to
four percent.

That, however, has met with skepticism from analysts, who
warned this year's high consumption growth would start to tail
off next year.

"Purchasing power for 2002 is likely to be lower than this
year's," said David Chang, director at PT Vickers Ballas Tamara
on Wednesday.

He said inflation would continue to remain high, stoking up
prices, and eventually put pressure on consumer purchasing power.

Annual inflation growth has been at double-digit rates, and is
expected to hit 12 percent by December.

Consumer spending has thus far remained strong, despite
inflation pushing up prices.

This was, in part, possible because consumers began spending
cash that had been saved as bank time deposits during the 1997
financial crisis.

Back then, time deposits attracted interest rates of more than
45 percent, as banks with liquidity problems scrambled to attract
funds.

With interest rates steadily falling since 1998, time deposits
traded for goods made up the bulk of last year's consumption.

Now there is concern that these funds are beginning to deplete
fast, with no other revenue source in sight to replenish them.

But Chang said even with consumer spending stifled, a growth
rate of 3.5 percent in the economy next year was still feasible.

"We cannot rely totally on the local economy ... there is hope
of foreign investment inflow providing an improvement to the
political climate," Chang said.

With its deficit state budget, the government has made clear
its spending cannot stimulate the economy in either this or next
year.

That role has been assumed by the private sector. Strong
export sales and buoyant consumer spending have been the main
growth engines behind the country's economy, which grew by 4.8
percent last year, and an estimated 3.5 percent this year. The
government forecast growth this year at 4 percent.

But export sales already showed signs of fatigue from early
this year, as pressure mounted due to a slowing U.S. economy.

The government has estimated that exports this year will drop
to US$42 billion to $45 billion, as against last year's $47
billion.

As for consumption, senior analyst at Kim Eng Securities Hans
Anggito predicted it to weaken next year.

"If we consider the high inflation, I doubt that consumer
spending will be as strong as this year's," he said.

Hans added the weaker rupiah made imported consumer goods
expensive, and demand for them would likely fall as well.

He and Chang agreed that foreign direct investment might
offset the weaker level of consumption.

Despite the global economic slump, Indonesia's privatization
program might still attract foreign investors, said Hans.

Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti has said Indonesia would weather the global downturn on the
back of a resilient domestic economy.

He noted a surge in energy consumption, an influx of smuggled
goods, and robust retail sales as sure signs of a brisk economy.

Consumer preference for spending cash rather than saving it at
banks contributed much to this year's strong consumption, said
Citibank economist Anton Gunawan.

He said a 20 percent income tax rate slapped on bank time
deposits had made investing in them unattractive.

The government imposed the tax ruling early this year, and
applied it on interest income from time deposits in excess of Rp
7.5 million (about $714).

"People are also not earning much at current bank interest
rates, with inflation this high; their real interest earnings
will remain small," Anton said.

He added that consumers in the middle- to higher-income groups
would maintain their lead on consumption growth next year.