Sumitro says government's projections too optimistic

Sumitro says government's projections too optimistic

JAKARTA (JP): Renowned economist Sumitro Djojohadikusumo said
on Thursday the government's latest inflation prediction of 10
percent for the 1999/2000 fiscal year ending in March was too
optimistic.

"I will not be that optimistic considering the possibility of
political 'turbulence' in the run-up to the upcoming presidential
election and the transition to a new government," he said.

The inflation rate for the current fiscal year would stay in
the two-digit range, between 10 percent to 15 percent, Sumitro
told journalists on the sidelines of the annual meeting of the
Indonesian Civil Servants' Cooperatives.

Sumitro, who founded the Jakarta School of Economics at the
University of Indonesia, chairs the Civil Servants' Cooperatives.

The government revised its projection in May, foreseeing
inflation in the 1999/2000 fiscal year at around 10 percent, far
below its previous estimate of 17 percent.

The government said it based its new prediction on the
strengthening of the rupiah, the declining trend in prices and
falling interest rates over the past couple of months.

The government also forecast economic growth of between zero
and 2 percent, an upward revision of the earlier estimate between
negative 1 percent and positive 1 percent growth.

Sumitro said the economic growth prediction was too
optimistic.

"I'd be more careful in making a prediction. I foresee zero
growth despite the recent improvements in key economic
indictors."

He said the improvements, as indicated by the drop in interest
rates, the declining trend in inflation and the strengthening the
rupiah, did not necessarily mean that the economy had entered a
"sustainable recovery" process.

He said Indonesia was mired in a depression, not a recession
period, so that it would need a longer period to make a
significant recovery.

"I'd say only within four years from now will Indonesia return
to the pre-crisis growth level.

"But even this will only be achieved if the transition to the
new government goes smoothly and political stability is
maintained," he added.

Indonesia's economy grew by 4.7 percent in 1997 but plunged
into a 13.7 percent contraction in 1998.

Commenting about the change of government, he said that if the
new elected president was not the candidate of the winning party,
the new president would be wise to invite the leader of the
winning party to form a coalition government.

"I'm not saying this because I support Megawati Soekarnoputri.
I am neither her fan nor a member of her party (the Indonesian
Democratic Party of Struggle). What I'm saying is the essence of
political ethics, nothing else."

Sumitro said the new government would have five top priority
programs: to maintain stability, provide greater autonomy to all
provinces, implement strong law enforcement, complete the
restructuring of the banking industry and the huge debt overhang
of private and state companies.

"These programs are prerequisites to a sustainable recovery of
the ailing economy," said Sumitro, who is regarded as the guru of
Indonesian economists.

He said it was also vital for the new government to fully
implement the guidelines set by the International Monetary Fund
(IMF).

"Like it or not, the new government must toe the line of the
IMF, unless it really does not need any foreign capital at all,"
he said.

He warned that foreign aid would still play a crucial role in
supporting the state budget, especially in financing the poverty-
alleviation program.

Sumitro said IMF was also an opinion leader for foreign
companies in deciding whether to invest in Indonesia or not.
(cst)