HSBC cuts Indonesia's growth forecast to 3.0 percent in 2000

HSBC cuts Indonesia's growth forecast to 3.0 percent in 2000

SINGAPORE (Dow Jones): Economists at HSBC Ltd., worried about the country's slowing exports, have cut the bank's forecasts for Indonesia's economic growth to 3.0 percent for this year and 1.5 percent in 2001.

An analysis in the latest issue of the bank's Asian Economic Insight, obtained Friday by Dow Jones Newswires, also expressed concern that Indonesia's economic situation could worsen if the cabinet "fails to agree on a coherent set of economic reform policies, leading to significant currency volatility."

Previously, HSBC had projected Indonesia's economic growth at 4.0 percent this year and 4.5 percent for next year.

"At best," the new assessment said, "the extremely low growth environment will persist."

It described the 3.2 percent year-on-year growth in the first quarter of this year as "disappointingly meager" and said that 40 percent of it can be attributed to an export spurt. A high rate of export growth "is unlikely to be sustained as global growth is close to peaking and should drop off in 2001," HSBC said.

The report also described Indonesia's balance-of-payments picture as "only marginally comfortable." With slowed export growth, there will be "much greater pressure on the external surplus and ability to service debt," it said.

The assessment, titled "Teetering On The Edge Of A Precipice", said the possibility of a "lack of political consensus" was a possibility that "cannot be completely ignored."

Such a lack, it continued, "could be disastrous, leading to high rupiah volatility and rapid depreciation."

That, in turn, could be lead to "chaotic conditions and could cause the leadership to take drastic steps including the possibility of capital controls," the report said.