Many concerned over current account deficit
Many concerned over current account deficit
JAKARTA (JP): Legislators and businessmen harbored strong reservations about the country's growing current account deficit and the overheating of the economy.
Speaking to journalists after a House plenary session yesterday, businessman Iman Taufik suggested that the government strengthen measures to reduce the deficit which has reached an alarming point.
In a press briefing on the 1996-1997 budget plan Wednesday night, Minister of Finance Mar'ie Muhammad estimated that the current account deficit would reach $7.9 billion for the 1995- 1996 fiscal year ending in March, up from $3.49 billion in the previous fiscal year.
The original estimate of the current account deficit for the current fiscal year was $4.05 billion.
Mar'ie said the government has projected that the current account deficit for the next fiscal year will shrink slightly to $6.87 billion.
"That large deficit sends a yellow (warning) light to us that our economy will continue overheating," said legislator Bomer Pasaribu of the ruling Golkar faction.
Sharing Bomer's concern, legislator Hamzah Haz of the United Development Party faction called on the government to take more concerted efforts to reduce the deficit.
"I think the government's fiscal and monetary policies, for instance, are already adequate to curb the current account deficit and cool down the economy," Hamzah commented.
At yesterday's plenary session, President Soeharto cited measures in the monetary field to help cool down the economy.
They include the increase in bank reserve requirements from two percent to three percent, the widening of the intervention band on the buying and selling of rupiah against the American dollar from two percent to three percent, or from Rp 44 (US .02 cents) to Rp 66, and the increased supervision over non-bank financial institutions.
Soeharto noted that the current account deficit problem is a normal symptom of a dynamic economy with a high growth potential.
He explained that the growing current account deficit in the balance of payments was caused by the high growth rate of import which was much higher than the growth rate of exports.
"With an open market economy we cannot simply curb imports. What we must do is to see to it that imports enhance exports, creating the widest possible employment opportunities and generating high added value," said Soeharto.
Iman, an executive of the Indonesian Chamber of Commerce and Industry, criticized the government's slow move to reduce the service account deficit, especially sea transportation, which has been most responsible for the deficit in services.
"The deficit in sea transportation services will likely reach Rp 6 trillion ($2.6 billion). But we continue to burden our national shipping firms with numerous taxes which do not apply to foreign shipping lines. If this unfavorable condition continues, we can't compete with foreign shipping firms," Iman contended.
Foreign shipping companies currently transport some 95 percent of Indonesia's export and import goods and 50 percent of goods shipped within the country.
The deficit in services is expected to rise this fiscal year to $13 billion from $11.5 billion in the last fiscal year. For the next fiscal year, the deficit in services is projected to rise further to $14.67 billion.
Central Bank Governor J. Soedradjad Djiwandono said at the press briefing that although Indonesia suffers a large current account deficit this fiscal year, it is still manageable because capital inflow is expected to reach US$10.64 billion for the current fiscal year.
"The overall balance of payments is projected to enjoy a surplus of $2.37 billion this fiscal year, up from 1.26 billion in the last fiscal year," Soedradjad said. (rid/04)