RI's economic growth to fall to 5.5% this year

RI's economic growth to fall to 5.5% this year

JAKARTA (JP): The growth rate of the country's gross domestic product (GDP) will decline to 5.46 percent this year from 7.82 percent last year due to the impact of the government's retrenchment program, according to senior economist Pande Radja Silalahi.

Silalahi, a senior analyst at the Centre for Strategic and International Studies, said the growth rate would remain low at 5.73 percent next year.

The government's move in August to cut the state budget and to delay major state-related projects would slow down economic activities over the next two years, he said.

Indonesia's GDP growth was 8.21 percent in 1995.

Silalahi's projection was much lower than the 7 percent growth estimated by other economists for this year and 6 percent for next year. But other experts predicted the rate would be less than 4 percent. The government estimated that growth would stay high at 7.4 percent this year despite the growing economic problems.

The rupiah has declined by about 35 percent against the U.S. dollar since speculative attacks first hit the country three months ago.

In addition to the retrenchment program, the government has also received a aid package worth nearly US$40 billion from the International Monetary Fund, the World Bank, the Asian Development Bank and several donor countries to cope with the financial crisis.

As part of the deal to support the IMF-led bailout program, the government recently began economic reforms that included the closure of 16 ailing banks.

Silalahi estimated that agriculture, livestock, forestry and fishery sectors would grow at a lower rate of 1.7 percent this year as compared to 1.89 percent last year.

He added that the growth rate in those sectors would increase to 2.1 percent next year. "The lower rate is mainly caused by the prolonged dry season."

The mining and energy sector, which significantly grew 7.13 percent last year, would grow at a lower rate of 4.5 percent and 5 percent this year and in 1998, respectively, he said.

"The processing industry sector, with a growth rate of 11.03 percent in 1996, will also see much lower rates of 8.5 percent in 1997 and 8.7 percent in 1998," he said.

"The most affected sectors are property, finance and corporate services which will see much lower growth rates compared to the previous periods," Silalahi projected.

The growth rate of the property sector, which was 12.37 percent last year, will drop to 5 percent and 4.5 percent in 1997 and 1998, respectively.

Trading, hotel and restaurant sectors will grow 5.5 percent this year and 6.3 percent next year as compared to 7.63 percent last year.

The transportation and communications sector, with a growth rate of 8.56 percent in 1996, would grow 7.5 percent in 1997 and 8 percent in 1998. The financial, leasing and corporate service sector which grew 10.52 percent in 1996, would see consecutive lower rates of 5.5 percent this year and 4 percent in 1998. The service sector's growth rate would also drop from 3.33 percent last year to 2.5 percent this year and 3 percent next year.

Silalahi said yesterday that Indonesia would be able to keep the inflation rate below 10 percent this year despite expected stronger inflationary pressure.

"The higher inflation rate just announced by the government was previously predicted," he said.

The government announced that its inflation rate for October was 1.99 percent, or 8.8 percent year-on-year. The increase last month was the highest in a decade. The January to October inflation rate was 7.6 percent, up from 5.35 percent in the same period in last year.

Silalahi said price hikes would be inevitable.

"The government has to set further measures to prevent the low-income group from suffering worsening impacts. The flow of products and services must be facilitated, while subsequent policies have to be stiffer," he said. (icn)