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)