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)