RI's account deficit predicted to grow to $8.5b

JAKARTA (JP): Economist Sjahrir estimated yesterday that Indonesia's current account deficit for the current fiscal year will expand to US$8.5 billion, far higher than the government's projection of $6.9 billion.

"Considering the current export and import trends, the government's target of limiting the current account deficit for this fiscal year to $6.9 billion will be impossible to reach," Sjahrir told a seminar, conducted by Citibank Global Asset Management.

Sjahrir noted that import growth during the calendar year would remain high although the government had taken a number of measures to curb imports, including the establishment of a special team to review public projects with high import contents.

He noted imports of raw materials, especially for export- oriented industries, will not ease and will even intensify owing to the increasing capacity of a number of the existing industries.

Imports of capital goods, especially for infrastructure development carried out by foreign investors, will not decline either because the investors have set the timetables for their projects.

"Such infrastructure development is inevitable because it is a very important factor in our economic growth," Sjahrir contended.

He continued that imports of consumption products will also keep increasing this year due to people's increased purchasing power.

"Customers everywhere are just the same. Who can dictate them to buy these or those products? I myself will buy local products as long as they are better in quality or at least the same quality as imported ones or if they are cheaper or the same price as the imported ones," he said.

On the export side, Sjahrir forecasted that Indonesia's exports, especially of non-oil products, will remain buoyant. "However, their growth rate will be far below that of the growth of imports."

The government has targeted to check the growth of imports at 11 percent this calendar year and increase export growth to 19.5 percent.

Indonesia's total exports grew by 11.8 percent to $45.42 billion last year from $40.05 billion in 1994, while last year's imports soared by 3 percent to $40.66 billion from $30.98 billion in 1994. Consequently, last year's trade surplus fell by 41 percent to US$4.75 billion from $8.07 billion in 1994.

The declining trade surplus caused the widening of the country's current account deficit, which was projected to increase to US$7.9 billion last fiscal year from $3.49 billion in the previous fiscal year.

Sjahrir explained that his projection on the current account deficit of $8.5 billion this fiscal year would also be driven by the increasing deficits in services, especially those for production activities.

The high projected deficit in the factor production services will come mainly from the increasing burden of foreign debt interest payments.

"Most of the increasing private borrowings, especially those raised from fixed-income instruments such as bonds, carry high interest rates. And thus, they are burdening the balance of the country's current account, especially when those borrowings reach their maturity," Sjahrir said.

He noted that Indonesia is increasingly dependent on foreign capital inflows to finance its deepening current account deficits. The inflows can come from direct investments, portfolio investments and external debts.

"That's why it is very important for Indonesia to maintain both its economic and political stability to ensure the continuous inflows of capital," Sjahrir said. (rid)

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