Possibility of chaos in 1998 ruled out

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)