Merril Lynch faster growth for Indonesia
JAKARTA (JP): Indonesia's economic growth, spurred by a stronger domestic demand and greater inflow of investments, will continue to accelerate next year, Merrill Lynch said.
"The economy and its prospects of robust growth over the next 12 to 18 months are seen as one of the most positive features of Indonesia at this juncture," Merrill Lynch, a U.S. research and economics group, said in the November edition of its Asian Economic Commentary made available to The Jakarta Post last week.
The monthly review said it is principally domestic demand that is likely to drive economic expansion over the next year or two.
"Real Gross Domestic Product (GDP) growth is forecast to accelerate from 6.5 percent in 1993, to seven percent in 1994, and 7.5 to eight percent in 1995," it said.
It said the increase in domestic demand will be caused mainly by a series of deregulatory measures recently introduced by the government, the lowering of income tax rates in 1995 and the expected rises of the government-set minimum wages to be paid by companies to their employees.
The introduction of a series of deregulatory measures, including one allowing foreign firms to hold 100-percent equities and easing requirements on divestment and the listing of the state-owned telecommunications company PT Indosat on the New York Stock Exchange have pulled Indonesia into the limelight and attracted the attention of global investors.
According to the Investment Coordinating Board approvals of foreign investments during the first 10 months of this year alone have reached almost US$23 billion, almost three times of 1993's approved $8.1 billion.
State Minister of Investment Sanyoto Sastrowardoyo said recently that this year's foreign investment commitments for non- oil and non-financial sectors are likely to reach a record high of $30 billion. The previous record was registered in 1992, for $10 billion.
The review said investments will likely increase in 1995 by a further 12 percent.
The strong inflow of investments is expected to be accompanied by buoyed consumption spending. Private consumption growth is likely to accelerate from 5.8 percent last year to 7.5 percent this year and to about nine percent next year, it said.
The cut in corporate and personal income taxes will also support this estimated growth.
Under the law bills, which were approved in October by the House of Representatives and expected to be effective next year, the top marginal rate of tax on annual incomes above Rp 50 million is to drop from 35 percent to 30 percent and on incomes between Rp 10 billion and Rp 25 billion from 25 percent to 10 percent.
Reform
Merrill Lynch suggested that the government continue its deregulatory measures with other reforms.
"The lowering of import tariffs and the removal of non-tariff barriers, which provide protection to uncompetitive domestic industries, are areas where the government could do more in the coming years," it said in the review.
It said the privatization of state-owned industries is another area which can be speeded up, while tighter management of the financial sector needs more attention from the government.
Merrill Lynch also foresees that the country's inflation will remain high next year but the high inflation does not necessarily mean an overheating of the economy.
Inflation during the first 10 months of this year reached 8.27 percent.(riz)