Salomon group upbeat about RI's post-poll economy

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)