Merril Lynch faster growth for Indonesia

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)