Policies aimed to cool down economy: Mar'ie
Policies aimed to cool down economy: Mar'ie
JAKARTA (JP): Fiscal and monetary policies in 1996/1997
(April/March) must be designed to cool down the economy without
arresting the country's economic growth rate, which is expected
to surpass seven percent, said Minister of Finance Mar'ie
Muhammad.
"It is much better to have natural economic growth consistent
with sound macroeconomic fundamentals than to have faster
economic growth leading to unstable economic fundamentals," the
minister said at a budget briefing here Wednesday night.
Therefore, he said, prudential monetary and fiscal policies
will be strictly implemented and synchronized with policies in
the real sector.
Mar'ie reiterated President Soeharto's instructions from a
Dec. 28 cabinet meeting last year, which stated that:
* The current account deficit should not increase.
* Non-priority government projects requiring a large amount of
imported goods and foreign loans should be reviewed.
* The Commercial Offshore Loan Team should maintain its duty
to control private borrowing and capital inflow.
* Ministers responsible for commodity prices should take all
steps necessary to help lower this year's inflation rate.
* The monetary authorities should restrain economic
overheating as well as decrease the current account deficit
and inflation.
* Coordinating Minister for Economy, Finance and Development
Supervision should coordinate the deregulatory measures that
still need to be undertaken.
* All state-owned companies should improve their efficiency,
quality and productivity. And the minister of finance should
continue the privatization of state-owned firms.
* Luxury taxes on imported goods which are not essential to
the general public should be reviewed.
* Banking credit expansion and the money supply should be
limited to a safe level.
The minister also noted that to provide equitable business
opportunities, President Soeharto decided:
* To support economic growth, the government should
emphasize the need to purchase domestic products, especially
those produced by small-scale enterprises.
* To speed up the formation of venture capital companies in
provinces in tandem with improvements in their management.
* To facilitate the flow of funds for small and medium-scale
enterprises.
* To pursue special programs to improve cooperation among
large, medium, and small-scale enterprises and pay
attention to fair and sound business principles.
The minister also noted that the formulation of the fiscal
1996/1997 state budget is based on the current sixth five year
development plan (Repelita VI), based on the following
assumptions:
An economic growth rate of 7.1 percent; an exchange rate of
US$1 = 100 yen; crude oil production of 1.5 million barrels per
day, including condensate production of 170 thousand barrels per
day and an average oil price of US$16.50 per barrel.
"Based on these assumptions, the proposed 1996/1997 budget is
projected to balance at Rp 90.62 trillion, or 16.1 percent higher
than the 1995/1996 budget," said the minister.
The tax ratio in the next fiscal year will increase to 12.8
percent, which is higher than the 12.0 percent of the current
fiscal year.
The minister said that Indonesia is now facing tougher
competition in exporting its manufactured goods. India and
Vietnam have become competitors in addition to China and other
Southeast Asian countries.
He said, however, that the Asian region, particularly East
Asia and Southeast Asia, remains the center of world economic
growth.
In 1995, overall economic growth in Asia is expected to
increase from 8.5 percent to 8.7 percent. "This creates a large
potential market for Indonesia," he said.
He pointed out that to get into the market Indonesia needs to
enhance its efficiency by maximizing comparative and competitive
advantages. "This should be a major goal of the next fiscal
year," he said.
According to figures provided by the Central Bureau of
Statistics (BPS), the Indonesian economy grew by 7.5 percent in
1994.
Last year, Indonesia's economic growth was estimated to reach
7.1 percent and its inflation rate was 8.64 percent, which was
lower than 9.24 percent recorded last year.
"Although inflation in 1995 was lower than it was in 1994, the
development of inflation must be monitored carefully during this
calendar year," he noted.
The high level of economic growth in 1995 was accompanied by
an overheating, which was reflected in, among other things, the
32.4 percent increase in non-oil imports and the increase of
imported consumer goods. Last year's non-oil imports grew by 10.8
percent.
As imports grew faster than exports, the current account
deficit for 1995/1996 will reach US$7.9 billion, or 3.8 percent
of the GDP. But during the next fiscal year, the deficit is
estimated to shrink to US$6.9 billion, or 3.1 percent of the GDP.
According to Bank Indonesia, the central bank, private
offshore loans signed from January to October reached US$6.07
billion, significantly higher than the US$2.30 billion in private
loans signed during the January-December period last year. (13)