'RI economy may grow by 7.7%'

JAKARTA (JP): Merrill Lynch, a U.S. securities company, estimates that Indonesia's economy will grow by 7.7 percent this year, as compared with 7.3 percent in 1994.

Merrill Lynch's estimate is much higher than the government's revised growth projection of 7.1 percent per annum for the sixth five-year development, ending in 1999.

Unlike the smaller, export-oriented Asian economies, which are vulnerable to the expected slowdown in the world economy through 1995, the large domestic market should offer Indonesia a relatively strong cushion, according to the securities company, which also runs a research department on international economics.

The securities firm said in its monthly review on Asian economies that Indonesia's economy could post one of its fastest rates of expansion in recent years before easing to a more sustainable pace of growth in 1996.

President Soeharto said in his National Day Address at a plenary session of the House of Representatives here last Wednesday that the country's annual economic growth target for the remaining four years of the current Sixth Five Year Development Plan (Repelita VI) period should be revised upward from an average of 6.2 percent to 7.1 percent.

The President said that the current growth projection was too low, given the higher than estimated growth in the last five years.

The average rate of economic growth in the previous five-year development plan period reached 8.3 percent per annum, while in 1994, the first year of the current sixth five-year development plan period, the figure reached 7.3 percent.

Soeharto said that the per-capita income target of US$1,020 by 1999 should be revised upward as the per capita income had already reached $919 at the end of 1994.

"The low target does not encourage us to work harder, work more productively and efficiently," the President said in his speech.

Local economists also expressed optimism that the economic growth in 1995 would pass President's revised growth target, given the sharp increase in investment in the last two years.

However, economists Loekman Soetrisno and Nopirin of the Gadjah Mada University said in Yogyakarta on Saturday that the higher growth target can only be achieved if the government eradicates corruption and collusion between businesses and government officials.

"Corruption and collusion have reached a level which can hamper the country's economic development," Loekman was quoted by Antara as saying.

Nopirin, who is also the dean of the university's school of economics, said collusion had caused the concentration of almost two-thirds of the country's wealth in the hands of a limited group of people.

Merrill Lynch said that a buoyant fixed investment growth of about 12 percent per annum is likely to be the major contributor to Indonesia's economic expansion, especially as the investment approvals in the past 12 months get translated into actual spending.

Investment growth is also likely to be bolstered by ongoing efforts to improve key infrastructure like electricity supply, telecommunications and transportation, it said.

Merrill Lynch, which last year acted as the global coordinator of the initial public offering of Indosat, the first state-owned firm listed on the New York Stock Exchange, the relatively buoyant consumption growth should also contribute to Indonesia's economic expansion in the coming years.

The securities company, however, warned that a high inflation rate and a larger external deficit will remain a problem.

Aside from inflation, a second by-product of the relatively strong Gross Domestic Product growth for two years running is likely to be a larger external deficit.

Merrill Lynch said that Indonesia's external current account deficit is likely to jump from an estimated US$2.9 billion in 1994 to over $4 billion in the current year and that the deficit will probably stay thereabouts in 1996.

The main culprit behind this jump in the external deficit is likely to be buoyant imports, which, in turn, will be mainly due to the strong expansion of domestic demand.

The securities firm said that imports grew by over 27 percent in the first quarter of 1995 and that the full-year 1995 growth of imports may be no less than 18 percent. (hen)