Indonesian exports promising: Lehman

JAKARTA (JP): Global investment bank Lehman Brothers said yesterday that Indonesia's export picture is "reasonably reassuring and expected to brighten in the coming months" on the back of "vibrant" growth in a number of industries.

In a report made available yesterday, Lehman's assessment is contrary to the popular opinion that the recovery in exports since late 1993 has been soft and a cause for some concern.

Lehman predicts that Indonesia's nominal merchandise exports should expand at a rate of around 16 percent per annum, while nominal merchandise imports will not exceed 15 percent by late 1996, keeping the current account deficit more or less stable as a percentage of the gross domestic product.

It said the growth of some industrial exports and foreign investment approvals, combined with recent corrective measures taken by the government, are key factors in the improving export picture.

"While exports of Indonesia's two leading export items -- garments and textiles, and plywood -- have been plagued by difficulties, their relative importance in total exports may be diminishing," the report said, quoting Miron Mushkat, chief economist for Lehman Brothers Asia-Pacific.

Another factor which should contribute to an increase in foreign investment is the government's revamping of the foreign investment code and liberalization of the tariff structure, both of which were introduced after the deceleration in export growth and steep appreciation of the Japanese yen.

"These corrective measures go along way toward addressing investor concerns and improving the investment climate. The approval figures for last year for the imports of the capital goods bear this out, and it is only a matter of time before that show of strength translates into significantly greater momentum on the implementation front," explained Mushkat.

Approval figures for last year stood at US$24 billion, with approvals for the first four months of the current year at $16 billion.

"The tariff restructuring package has eliminated some of the uncertainty facing local manufactures and the suppliers of credit, both of whom may now be more willing to commit capital to long-term domestic projects following its introduction," he said.

Mushkat concluded: "One is tempted to argue that, given the circumstances, the persistently high risk premiums attached to Indonesia's financial assets should shrink."(31)