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

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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Inflation -- Page 9