Failure to restore political crisis will worsen economy
Failure to restore political crisis will worsen economy
JAKARTA (JP): The success of the government's attempts to
resolve the country's political difficulties will become a
determining factor in leading the crisis-hit country out of its
dire economic situation, according to three leading economists.
The University of Indonesia's Sri Mulyani Indrawati,
government adviser Arsjad Anwar, and Rizal Ramli from the Econit
research institute said here on Friday that failure to end the
political crisis would lead to further deterioration in the
country's economy.
"The recovery of our economy will become a dream if the
political and social crises are not resolved," Sri Mulyani told a
seminar organized by Bisnis Indonesia on Friday.
Investors are concerned by the country's political
instability, which is partly due to the inability of the
President B.J. Habibie's administration to introduce a clear-cut
agenda for political reform.
Habibie became President in May after his mentor, former
president Soeharto, was forced to resign amid growing social
unrest and crumbling support for his autocratic rule.
Since then, Habibie's new administration has been dogged by
persistent antigovernment protests and demands for sincere
political reform.
A general election is planned for June 7 next year. The
People's Consultative Assembly (MPR) will then convene in a
general session on Nov. 30 to elect a new president and vice
president.
The economists said that most foreign investors would wait to
see what happened during the general election before
contemplating a return to Indonesia.
"If the general election passes satisfactorily, it will mean
that Indonesia still has as future. But if not, Indonesia will
sink," Rizal said.
Sri Mulyani said the economy would begin to improve if the
current political problems could be resolved.
If this happened, she argued, gross domestic product (GDP)
would decline by only two percent next year, compared to more
than 15 percent in the current financial year.
"Under the most optimistic scenario, our economy is expected
to contract by only two percent, inflation is forecast at 20
percent and deposit rates would fall to 30 percent," she said.
The government has forecast economic growth of between
negative one percent and plus one percent next year along with an
inflation rate of between 15 percent and 20 percent and a rupiah-
dollar exchange rate of between 7,000 and 8,000.
However, she said that if political and social reform agendas
were not adhered to, economic growth would be negative 6 percent,
inflation would be 35 percent and interest rates would hover at
around 45 percent.
Rizal presented an even gloomier set of forecasts. He
predicted a 5 percent contraction in the economy next year, even
if the general election passed off successfully.
"That is the most positive scenario, while the worst is that
our economy will contract by 15 percent," he said.
Sri Mulyani said the government's failure to resolve its
political difficulties would result in economic growth of
negative 8 percent and an inflation rate of 45 percent.
"This will keep interest rates up at around 55 percent and the
rupiah-dollar exchange rate at the 12,500 level," she said.
The rupiah, which fell to Rp 16,800 against the dollar in May
this year, is now hovering at around Rp 7,500, with currency
dealers confident it will remain at this level for the rest of
the year.
Rizal said the stability in the rupiah exchange rate was the
result of government intervention and bullishness in the regional
markets.
"A stable rupiah does not reflect an improvement in our
economy. There is still a long way to go," he said. (aly)