RI growth will remain strong in 1995: Econit

RI growth will remain strong in 1995: Econit

JAKARTA (JP): The high inflation rate over the past few
months, the appreciation of the yen and the government's slow
response to new economic developments may affect Indonesia's
economy in the short term, an economic think-tank said yesterday.

However, the Econit Advisory Group in Economics, Industry and
Trade, said in its mid-year review that in the long term,
Indonesia's economy, bar any unexpected social or political
instability, will not face serious problems in reaching an annual
growth rate of six or seven percent per annum because the current
fundamental factors in the economy are healthy and well managed.

Laksamana Sukardi, an associate director of Econit, said that
the economy might grow more than seven percent if the government
manages the macro-economy better.

He said that Econit has downgraded its assessment on
Indonesia's short-term economy, as compared to its assessment
last November, after the announcement of the high inflation rate
in the first few months of this year, the appreciation of the yen
and the slow response of the government towards economic
developments.

Econit's economic outlook for 1995, published last November,
said that the Indonesian economy should be very healthy this
year.

Poor coordination

Laksamana said the government's slow response towards economic
developments indicates poor coordination among its institutions,
particularly those related to the management of economic sectors,
such as trade and industry.

He said such a slow response has caused Indonesia to lose
export opportunities offered by very favorable international
factors early this year.

"The May 23 deregulation package was introduced too late to
respond to the opportunities," he added.

Moreover, the deregulation did not touch sectors vital to the
public and will not contribute much to support economic
development, he added.

He said the inflation rate in the last few months was too
high.

According to the Central Bureau of Statistics, the inflation
rate during the first four months of this year alone reached 4.73
percent, only slightly below the five percent targeted by the
government for the whole year.

Laksamana said that the high inflation rate was mainly caused
by substantial increases in the prices of commodities of which
the domestic trade is regulated by the government, such as
cement, wheat flour, sugar, cooking oil and paper, due to their
oligopolistic trading.

"It's ironical that the prices of the regulated commodities on
the domestic market are far higher than international price
levels," he said.

The domestic retail price of sugar, for instance, was recorded
last month at US$733 (Rp 1.63 million) per ton, 145 percent
higher than the international price of only $299, while the
domestic retail price of wheat flour was $378 per ton, 47 percent
higher than the international price of $256, he said.

Laksamana said the recent increase in banking deposit rates to
about 14.5 percent per annum has raised lending rates to a range
of between 21 percent and 23 percent per annum.

"If the lending rates increase further to 25 percent, many
companies will face cash-flow difficulties and many debts may go
sour," he said.

Econit estimates interest rates will most likely further grow
by between one and two percent by the end of this year due to the
high inflation rate, the funding gap in the banking sector and
the expectation of steep rupiah depreciation. (32)