Government asked to monitor current account deficit

Government asked to monitor current account deficit

JAKARTA (JP): Members of the House of Representatives urged the government yesterday to closely monitor the country's widening current account deficit and mounting foreign debt.

The request, made in the wake of last week's run on the rupiah, was made during the first round of the deliberation of the 1995-96 draft budget.

The Indonesian Democratic Party's faction in the House warned that the current account deficit could become a serious problem in the next fiscal year if no concrete measures were taken.

"The country's balance of payments should be closely monitored as the expected surge in imports resulting from the increase in new investments could further worsen the country's current account performance," the faction's spokesman, Soedaryanto, told the House's plenary session, which was attended by Minister of Finance Mar'ie Muhammad.

Foreign fund managers dumped the rupiah last week, fearing that a Mexican-style devaluation might also take place in Indonesia. The Mexican financial crisis also rocked other emerging markets, including Malaysia, the Philippines and Thailand.

The Indonesian Democratic Party estimated that the current account deficit might exceed the projected level if no appropriate steps were taken to curb imports and mounting foreign debt, and to improve the competitiveness of the country's non-oil exports.

The current account deficit is projected to further expand to US$4.09 billion in 1995-96 from the estimated $3.56 billion this fiscal year and $2.94 billion in 1993-94.

The government said that the current account deficit, accounting for 2.3 percent of the country's gross domestic product, is still at a safe level.

Minister Mar'ie said that the country's foreign debt, totaling around US$93 billion as of September last year, was not a cause for alarm, given the large capacity of the country's economy.

Fears

Soedaryanto said that the government had to take concrete steps to allay fears about a possible devaluation, as issuing promises would not be sufficient.

The Moslem-dominated United Development Party's (PPP) faction also stressed the need for a more prudent policy in managing the balance of payments and the country's foreign account deficit.

The PPP shared the Indonesian Democratic Party's view about the need for closer control of foreign debt and import activities as the worsening of those two economic fundamentals could undermine the country's economic stability.

The PPP faction's spokesman, Mukrom As'ad, said that the rise in the country's foreign debt, estimated to reach $100 billion in the next fiscal year, should be curbed as the prospects of the country's exports could become more uncertain in the future.

"If we fail to improve the competitiveness of our products, we will become a loser in the world market," he said of the need to improve the quality of local products in the face of economic globalization. (hen)