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)