Merrill Lynch predicts 7.5% growth for RI
Merrill Lynch predicts 7.5% growth for RI
JAKARTA (JP): Merrill Lynch of the United States estimates that the growth of Indonesia's Gross Domestic Product (GDP) will likely top 7.5 percent this year, rising from an estimated 7.1 percent in 1994.
"The real GDP growth should top 7.5 percent in 1995, driven largely by manufacturing and construction industries, while inflation should be maintained at below nine percent," Merrill Lynch said in the March edition of its Asian Economic Commentary.
The monthly review said that growth of Indonesia's non-oil sectors should be even higher at eight to nine percent, putting Indonesia at par with its neighbors, such as Thailand and Malaysia.
The manufacturing and construction industries should continue to drive growth on the back of strong exports and infrastructure investment, said Merrill Lynch, a merchant bank which operates securities companies in most major Asian countries, including Indonesia.
It added that the service sectors should also be buoyant along with more external trade and robust domestic demand. Agriculture may also revive if whether conditions are favorable.
Warning
However, Merrill Lynch warned a strong credit growth and rising inflation and the widening current account deficit, which have emerged as the major concerns since the latter part of 1994, could affect the country's economic growth.
On inflation, the merchant bank said that it was upbeat the inflation would stay in a single digit. "Against this backdrop of a slightly overheated economy, the government's policy focus seems to be leaning towards stability," it said.
Inflation reached 9.24 percent in 1994, as compared to 9.77 percent in 1993. During the January-February period of this year, inflation was recorded at 2.47 percent.
Merrill Lynch said that fixed investment should be the major engine of real GDP growth in 1995 as it is expected to expand about 12.5 percent. In 1994, approvals for foreign direct investments rose 193 percent to US$23.7 billion, while domestic investment approvals rose 35 percent to Rp 53.3 trillion ($24.8 billion).
These approvals will eventually turn into real investment when the projects are gradually realized.
The merchant bank considered that speculative attacks on the Indonesian rupiah following the Mexican peso crisis early this year did not reflect the real condition of the Indonesian economy.
"The favorable external payment position does not warrant any major devaluation at this point of time, as continuous capital inflows should be more than enough to fill the current account gap," it said.
Merrill Lynch said that while the large foreign debt -- estimated at $93 billion -- may be a concern, strong non-oil export growth should help reduce the economy's debt-service ratio.
"It is also this large foreign debt burden which makes a major devaluation undesirable, as it will merely increase interest and principal payments in local currency terms," it said.
It said a weak currency may also aggravate inflation by making imports more expensive.
"The rupiah is expected to continue its steady and moderate depreciation of about five percent against the U.S. dollar during 1995," it noted. (hen)