Our economy shines
Our economy shines
The explosion of the US$450 million loan scandal at the state-
owned Bank Bapindo which jolted the financial sector early this
year turned out to have only a little impact on the performance
of the Indonesian economy as a whole this year. The speed and the
way in which the monetary authority coped with the credit fiasco
not only prevented a run on Bapindo but also succeeded in
maintaining the public's trust in the banking system. The amount
of private savings raised by banks during the first 10 months of
1994 increased by 10 percent.
The additional packages of reform measures launched in the
middle of the year further strengthened investor confidence in
the long-term prospects of the economy. Indonesia's leading role
in hosting the Nov. 15 meeting of APEC economic leaders and
motivating them to agree to adopt free and open trade and
investment in the Asia-Pacific region by the year 2020 served to
reassure domestic and foreign businessmen of the future direction
of the country's economy.
All these developments got immediate, positive responses from
businessmen. Foreign investment commitments licensed this year
increased by 195 percent to $23.7 billion and domestic investment
plans by 35 percent to Rp 53.3 trillion ($24.2 billion). More
foreign banks and major securities houses have become
increasingly active. Total bank lending expanded by more than 18
percent. The Jakarta stock exchange got about 230 new share
listings, thereby raising the market capitalization to Rp 105.2
trillion or 30 percent of the gross domestic product. Around $4.7
billion was raised through share and bond flotation during the
first eleven months of this year.
The 30 percent rise in minimum wages this year and another 10
percent increase next year will hopefully strengthen good
industrial relations and minimize the incidence of labor strikes,
which, given the high unemployment rate and widening gap between
the very rich and the poor, could easily turn into acts of
vandalism and have far-reaching repercussions in relation to
political stability.
The remarkable progress achieved in the privatization of such
basic infrastructure as power generation and telecommunications
this year is expected to further reduce the high-cost components
of the economy.
The lower income tax rates to be introduced by the new tax
laws next year have been praised as greatly conducive not only
for stimulating new investments, but also for broadening the tax
base. This is good news for the state budget because tax receipts
now account for around 65 percent of total internal revenues for
the government. Given this favorable condition, the average
annual increase of 20 percent in tax receipts over the past few
years may well be within reach for the coming 1995/1996 fiscal
year beginning in April. As the international prices of oil,
which together with natural gas contribute about 25 percent of
the government revenues, are projected minimally at a range of
$16 to $18 per barrel next year, the 1995/1996 state budget can
most likely be increased at least by 20 percent.
Noting all those positive factors, no wonder most economists
estimate the economic growth at at least 6.7 percent this year
and predict another robust expansion of seven percent next year.
The only caveat is inflationary pressure.
That looks simple to deal with. But the success in curbing
inflation will determine bank interest rates, which in turn will
influence investment activities, and will determine the rate of
rupiah depreciation against major international currencies. And
in so far as Indonesia is concerned, the challenge is not small
at all because anti-inflation measures require not only careful
monetary management, but also further deregulation measures to
improve the overall efficiency of the economy. Further down the
line, that calls for further reduction of bureaucratic hurdles
and high tariff protection and improvement of the mechanism of
market competition.