RI could take 5 years to reach 1997 GDP level

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analysis and the forecasts were therefore no longer valid.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)