Salomon group upbeat about RI's post-poll economy
JAKARTA (JP): A foreign economist believes that Indonesia will stay with its pragmatic economic policies beyond next year's general election to maintain its impressive economic performance.
John P. Lipsky, chief economist at New York-based Salomon Brothers Inc., acknowledged here yesterday that all general elections create uncertainty, as do most situations that could lead to a change in policy.
"Obviously the Indonesian situation is potentially a unique case because of its long-term stability," Lipsky told a seminar on the international financial market at the Financial Club.
He acknowledged that Indonesia's current economic policies, in broad terms, are stable and consistent and have produced good economic results.
"If they continue to produce good economic results, it will enhance the likelihood that those policies will be preserved. So that strikes me as an important issue for the next few years," Lipsky said.
When asked if he was worried about inconsistent government policy, Lipsky said that policy stability is a typical concern in all countries.
He noted that the strong performance of the Indonesian economy must be the result of policies that "now appear to be quite successful".
There has been a consistent direction in Indonesia's economic policies, ones that evolve, are relatively stable and predictable, oriented toward liberalization and privatization and increasingly market orientated, Lipsky said.
If that continues, he added, Indonesia's economy will grow robustly.
Growth
Salomon Brothers has predicted that Indonesia's economic growth will remain high, at 8 percent this year and 8.5 percent next year.
Unlike Japan or the United States, where a rapid gain in productivity would require new technology and new breakthroughs, Indonesia can achieve productivity gains through the better allocation of economic resources, the application and shifting of laborers to productive sectors as well as the creation of policies toward greater market orientation, Lipsky said.
"The better the economy does, the more likely we will see the willingness to maintain policies that have been successful."
He stressed that Indonesia needs to preserve its good economic policies and maintain policy consistency at a time when its current account deficit is deepening.
When the government is successful in maintaining the stability of its economic policy and macroeconomic balance, Lipsky said, the deepening current account deficit will not be a problem for Indonesia.
Salomon Brothers has projected that Indonesia this year will record a current account deficit of US$9 billion, or 4.1 percent of the country's gross domestic product, higher than the deficit of $7.5 billion in 1995.
At this time, Lipsky said, Indonesia's current account deficit does not suggest any crisis as Indonesia's economy is relatively strong.
"We think that worries about the deficit in Indonesia have been exaggerated," Lipsky said. "I think the deficits will be more manageable than many have suggested."
"What we are saying is that polices are not going to be a problem. If the policy discipline becomes relaxed, the situation could change," he noted, adding that Indonesia depends very much on foreign capital to cover up its current account deficits.
He noted that Indonesia can easily tap foreign capital as long as the country can maintain its macroeconomic balance and the stability of policies. The availability of cross border investment and capital flows into the Asian region will continue to be extremely favorable in the coming years, he said. (rid)