RI's economy to start growing in 2000: Mari

JAKARTA (JP): Fallout from domestic political turmoil rules out the country returning to the growth track before 2000, noted economist Mari E. Pangestu said on Wednesday.

The executive director of the Center for Strategic and International Studies added that the country would record negative growth next year of between minus 2 percent and minus 5 percent.

"As we have to balance social and economic concerns, our recovery will be very slow. We need at least three to four years to reach a normal situation, that is growth of 6 percent per annum," she said at a year-end news conference.

Mari used the occasion to bid farewell to journalists as she will join her husband in the U.S.

Economic recovery in Indonesia will depend heavily on inflow of private capital but it would not come during a crisis, she said.

"We are experiencing a crisis in leadership -- a crisis in political leadership, a crisis in economic leadership and a crisis in military leadership."

Even if all political plans go according to schedule, real private investment will not enter Indonesia until a new government is formed by the end of 1999.

Prospective foreign investors prioritize policy consistency and credibility of a new government in making their choices, Mari said.

Policy consistency would not be a major issue in the near future because Indonesia's economic policy would still be steered by the International Monetary Fund, which arranged a multibillion dollar bailout for the country.

In terms of government credibility, Mari said foreign investors would act on cues from domestic investors. Once domestic investors started to invest, foreign investors would follow suit.

Mari acknowledged that Indonesia's macroeconomic health was improving, with falling interest rates and inflation and a steady rupiah.

"But that could not yet serve as a foundation for growth as there are still great uncertainties in the real, financial and political sectors."

Mari believed inflation would fall next year, but it would still be in double digits and higher than the government's target of between 10 percent and 15 percent.

The rupiah exchange rate would remain stable at the current level or even strengthen toward March 1999, the end of this fiscal year, because official funds would continue to flow in.

She warned that rupiah stability would be in danger once corporations started to repay their loans.

The currency has stabilized in very thin trading on the foreign exchange market. Once large demand arises, Mari cautioned that the local unit would be easily pushed down.

"Therefore, it is very important to solve this private debt hangover."

Indonesia's private corporations owe more than US$60 billion to foreign creditors.

Economist Pande Raja Silalahi said the problem of foreign exchange would continue to loom in the immediate future because the government would still need about $10 billion to $14 billion in foreign aid next fiscal year to finance deficits in the State Budget.

It will not be easy for the government to get that amount as it has drained a huge amount of creditors' money this year.

Spending from State Budget will become a prime mover of economic activities next year because bank lending would still minimal.

Pande contended that most of third party funds in the country's banking industry were short-term at less than one-month duration.

"Therefore, it is of the utmost important to restore public trust in the banking system." (rid)