Possibility of chaos in 1998 ruled out
JAKARTA (JP): Noted economist Sjahrir predicts an average growth rate of more than seven percent for Indonesia's economy during the 1995-2000 period and rules out the possibility of chaos during the succession of the national leadership in 1998.
Sjahrir foresees an economic growth (in terms of gross domestic product) of 7.5 percent this year which will be fueled mainly by the manufacturing and construction sectors.
"I think the economic expansion will run even at a higher pace in 1996 and 1997 as a result of the implementation of the huge sums of new investment commitments licensed by the Investment Coordinating Board (BKPM) over the last two years," Sjahrir said yesterday.
Sjahrir was one of the panelists at a one-day seminar, organized by Citibank, which discussed the prospects of Indonesia's economy and the capital market in the run up to the year 2000.
He based his prediction on the assumption that the economic reform process, such as deregulation and economic liberalization, will continue in line with Indonesia's commitments to the ASEAN Free Trade Area in 2003, APEC free trade in 2010 and the multilateral trading arrangements under the World Trade Organization.
Sjahrir also assumed that the government would maintain its prudent macro-economic management such as conservative monetary and fiscal policies, balanced budget, prudent borrowings and realistic foreign exchange rate policy.
"I think the impetus of economic growth will be the manufacturing industry and other sectors related to such infrastructure as transportation, telecommunications, electricity and construction," noted Sjahrir, managing director of the Institute for Economic and Financial Research.
The only variable which remains largely a subject of speculation is the composition of the next cabinet (1998-2003) and its policy, he said.
"However, given the intensive inter-linkages between the state budget and balance of payments, which are both highly vulnerable to external factors, I don't think the government will have much leeway for substantial changes in its macro-economic policies to maintain stability," he pointed out.
Maintaining a relatively low inflation rate is also crucial to efforts to maintain economic stability, according to him.
"It will be extremely difficult for Indonesia to maintain its external balance if the country's inflation rate remains higher than the rate of the rupiah's depreciation against the U.S. dollar," Sjahrir cautioned.
Succession
He acknowledged that predicting the prospects and outlook of Indonesia's economy would not be so reliable without taking into account the impact of the succession of the national leadership in early 1998.
President Soeharto will end his sixth successive five-year term in March, 1998.
Sjahrir also admitted that the stability in the political system has been one of the main supporting factors that have enabled the country to maintain a steady, robust economic growth over the past 30 years.
"I don't rule out the possibility of some political upheavals in the run-up to the succession. Nor do I rule out the possibility of changes in the political system."
"But I strongly rule out any possibility of chaos," Sjahrir pointed out.
He argued that Indonesia's present economic structure and foundation and the micro-dynamics of the economy are much different from those before the mid-1960s.
"The most notable change is that the micro-production units which in the past used to be dominated by households (farmers) have now shifted more to business units that are more efficient entities," he added.
Moreover, according to him, Indonesia's economy has become more interlinked with the global economy.
In fact, he added, its relatively large current account deficit and big debt installments have forced the country to rely largely on foreign capital flows.
"Then, Indonesia, due to its open capital account system, cannot afford a prolonged power struggle which may set off chaos," he said in citing another reason as to why the government will always go all out to maintain stability, irrespective of who will become the next president.
He also cited the steady increase in the number of companies going public through the domestic and international stock exchanges as another deterrent to any possible chaos related to the succession.
"I fully agree with the view of Bacelius Ruru (Chairman of the Capital Market Supervisory Agency) that the stock exchanges have been promoting the democratization of capital in the country," he said.
Sjahrir therefore called on the approximate 150 businessmen, mostly portfolio investors attending the seminar, not to easily be misled by foreign analysts' assessment of future political developments in Indonesia or risks in the country. (vin)