RI's GDP estimated at 7% despite crisis

JAKARTA (JP): The Castle Group, a business consulting company, predicts that Indonesia's gross domestic product (GDP) growth will reach 7 percent in the 1997 calendar year and next year despite the currency turmoil.

"The impact of the 'black August' (currency crisis) is not behind us yet but there is already a significant amount of growth for the year and its momentum will take the country above the 7 percent GDP growth this year," said Castle Group chairman, James Castle.

But he said Indonesia was not out of the woods yet and a key factor in determining the medium-term health of the economy would be the fate of Indonesian corporate companies over the next three to six months.

"There is a great deal of concern about foreign exchange losses and uncovered currency obligations and we must wait to see how deep the problem is before we can be confident about the future," he said.

But Castle predicted that the pressures on macroeconomic management would not be overwhelming and that the inflation rate would be kept below 7 percent per annum this year and next year.

The group predicted that the lending rates would decline to between 18 percent and 25 percent, providing more leeway for business activities.

"High interest rates will come down toward the end of the year but will be much higher than the 18 percent initially predicted," he said.

He said the rupiah, which has fallen by over 20 percent against the U.S. dollar since early July, would stabilize at between Rp 2,850 and Rp 3,000 given such macroeconomic indicators.

"The rupiah seems to have stabilized at about Rp 3,000 to the dollar and the currency will depreciate about 5 percent over the next 12 months although there are likely to be wide fluctuations around this figure," Castle said.

Castle predicted that several Indonesian corporations would face a critical period in the next three months because a lot of their short-term debts have matured and might have to be rolled over.

"Short-term foreign debts might amount to about US$2 billion per month in the next few months," he said.

"If we can get through the next three months without any significant bank suffering major corporate defaults, we can expect a solid recovery."

Castle said such a forecast was based on the current currency problems as the spillover impact of the mismanagement in Thailand and domestic overconfidence following years of rapid growth resulting from high direct and portfolio investment levels and a substantial policy deregulation.

The group said aggressive exporting by China has not taken exports away from Southeast Asia.

"We have analyzed exports from the major ASEAN countries, India and China, and the data shows that China's share of this total (27 percent) was virtually the same in 1996 as it was in 1992 (26 percent)," the group said.

Indonesia's share, it said, was constant between 10 percent and 13 percent.

He said he believed that the government had taken proper moves to face such currency woes including the gradual easing of the monetary system. (aly)