RI could take 5 years to reach 1997 GDP level
JAKARTA (JP): The Indonesian economy will continue to contract and will bottom-out this year before the first green shoots of the recovery spring up next year, but pre-crisis growth rates will not be recovered until 2002, economists predict.
Mari E. Pangestu, executive director of the Center for Strategic and International Studies, forecast yesterday that the country's gross domestic product (GDP) would shrink by between 10 percent and 20 percent this year.
The industrial sector is expected to contract by 10 percent to 12 percent this year, the service sector by between seven percent and 10 percent, while the agricultural sector is expected to grow by 0.5 percent.
She predicted that the economy would remain stagnant next year while the country held a general election, and would register annual growth of 2 percent in 2000 and 4 percent in 2001.
"So, we need at least five years to return to the level real GDP was at in 1997," Mari said at a media conference on the economic outlook in the Pacific region held by the Pacific Economic Cooperation Council (PECC).
Suhadi Mangkusubroto, a PECC economist, predicted that Indonesia's economy would contract by 4.5 percent and inflation would rise to 32 percent during this year.
However, he said the effects of major political and social unrest or other destabilizing forces had not been included in the analysis and the forecasts were therefore no longer valid. The forecasts were last revised in March when Soeharto was still in power, he added.
"The situation now is much worse than a few months ago when the analysis was carried out. Therefore all of our forecasts are inaccurate. For the time being, we should rely on the Central Bureau of Statistics projections for growth and inflation," Suhadi said.
The bureau predicted on Monday that the country's GDP would contract by 10.1 percent and inflation would soar to 80 to 85 percent this year.
Raden Pardede, a senior economist with state-owned Danareksa Sekuritas, told The Jakarta Post yesterday that the bureau's projections for economic growth and inflation were still too optimistic.
"I think our economy could contract by as much as 20 percent this year with inflation surpassing the 85 percent level projected by the bureau," he said.
He said the economy would continue to contract because levels of domestic and foreign investment were still declining.
Domestic investment would continue to fall because of high interest rates and a decline in the savings rate to 18 percent from 30 percent two years ago, he explained. Foreign investment is continuing to avoid Indonesia because of the all-pervading uncertainty in the country.
Raden said inflation could surpass the 85 percent level because the central bank would have to print more money, employers would face pressure to raise wages, their product prices would continue to rise and the rupiah would further weaken.
Suhadi said the current situation resembled the dire economic circumstances of 1966/1967 after the fall of the country's first president Sukarno.
"It is very similar to the situation in 1966/67 when we could not finance our development programs. The government did not even have enough money to finance routine spending," Suhadi said.
Luckily, he said, the government received soft loans from friendly countries to help see them through those difficult years.
Suhadi suggested that the government work closely with the International Monetary Fund (IMF) so that the agency would quickly approve disbursement of loans to the country, which would in turn encourage friendly countries to grant Indonesia further bilateral aid.
"Only with foreign loans will the government be able to finance its operation, continue subsidies and stimulate the economy," he said.
Miranda S. Goeltom, a Bank Indonesia director, agreed with Suhadi's suggestion and said the government would use some of the funds available to help existing businesses to expand. (aly/rid)