Indonesia economy grows healthily into '95

Indonesia economy grows healthily into '95

JAKARTA (JP): Two prominent economists said Saturday that
Indonesia's economy, spurred by a greater inflow of investments
and stronger growth in the agricultural, manufacturing, mining
and construction sectors, is likely to grow faster in 1995.

"With the rapid expansion in investments and the industrial
sector, we are optimistic that the country's Gross Domestic
Product (GDP) will grow by over seven percent next year,"
Mohammad Arsjad Anwar, a lecturer at the economics faculty of
the University of Indonesia, told a one-day seminar here on the
1995 economic and advertising business prospect.

However, Dorodjatun Kuntjoro-Jakti, also a lecturer at the
university, warned in an internal discussion at The Jakarta Post
on Saturday that Indonesia's inflation rate will remain high
next year, while interest rates will increase.

Arsjad, who is also an assistant to the chairman of the
National Development Planning Board, said that the country's GDP
is estimated to grow by 7.5 percent next year, as compared to an
estimate of seven percent this year and only 6.5 percent last
year.

Dorodjatun was also optimistic, saying that the country's GDP may
grow by 7.2 percent in 1995, as compared to an estimated 6.8
percent this year.

The bullish growth in the country's economy will be supported by
a greater inflow of foreign investments as a result of the
increasing current account surpluses in Japan, western Europe and
newly industrialized countries, Arsjad said.

According to the Investment Coordinating Board, commitments of
foreign investments approved by the government during the first
nine and a half months of this year alone reached $23.1 billion,
almost three times the $8.1 billion approved in 1993.

Dorodjatun said next year's high economic growth will also be
supported by increasing oil prices on the world market.

Imports

"In a related development, the country's imports of capital goods
posted a sharp increase this year, clearly justifying the
acceleration of the investment sector," Arsjad said.

During the first eight months of this year, imports of capital
goods rose 8.4 percent over the same period of last year.

But, according to Dorodjatun, the implementation of investment
projects in 1995 will not be as high as the levels committed by
their investors because there will likely be capital shortages in
industrial countries, the major source of Indonesia's foreign
investments.

"The shortage of capital in industrial countries is indicated by
the widening gap between interest rates on long and short term
loans," he said.

Arsjad said that the agricultural sector, which has grown slowly
over the past 10 years, expanded robustly in the first two quarters
of this year.

"Prices of our rubber and coffee on the international market, for
example, have sharply increased this year," he said.

Arsjad said the bullish growth in the manufacturing and mining
sectors next year will be spurred by stronger domestic demand as a
consequence of the planned reduction in the income tax rates
beginning next year and the expected rise in the government-set
minimum wages for workers.

He said that the expansion of banking credits will become a key
factor to the acceleration of growth in the construction industry.

Arsjad assured participants of the seminar Saturday that the
bullish growth in some industrial sectors will push up exports.

He did not unveil the growth, but a prominent senior economist,
Sumitro Djojohadikusumo, predicted that the country's exports are
likely to increase to $45 billion next year from an estimated $40
billion this year.

Speaking at an annual meeting of the Civil Servants Cooperatives
Organization on Thursday Sumitro predicted that the country's
exports will further increase to $70 billion in 1998.

Dorodjatun said the increasing exports will also be supported by
high economic growth in industrial countries, the major
destinations of Indonesia's exports.

The economy in Japan, for example, is likely to increase from an
annual rate of 0.8 percent in the third quarter of this year to
almost two percent next year, while the U.S. economy may continue
to grow by more than 2.6 percent next year, he said.

Inflation

He projected that Indonesia's inflation will remain high next
year. "The inflation rate may reach eight percent next year," he
said.

Inflation reached 8.72 percent during the first 11 months of this
year, as compared to 9.24 percent last year.

Dorodjatun said the high inflation, coupled by increasing
interest rates in the United States, will force Indonesian banks to
raise their interest rates next year, thereby slightly affecting
demand for property and durables.

Prime interest rates may rise to 20 percent per annum next year
from 19 percent this year, he added.

The high interest rates and inflation and the increasing market
competition will also reduce the profits of companies, he said,
adding that they may also encourage companies to merge for
endurance.

"But the increasing interest rates will encourage the rapid
expansion of the country's capital market, a source of cheap
money," he said.(fhp/riz)