ECONOMIC PICTURE AT END OF JULY 1998
> Kadin Indonesia Bulletin <
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ECONOMIC PICTURE AT END OF JULY 1998 |
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> Kadin Indonesia Bulletin < |
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Agustus 1998 With previous issues we used the title "Economic Outlook (for the following month)", but we do not feel comfortable any more with such claim. In our "Outlook for July", fortunately we only said that "the month of July may be an important month, because of some political developments". Golkar now has a new leadership. Akbar Tandjung, who, as state secretary, is very close to President Habibie. This means that Habibie's position as president is more secured. If Habibie scores well during this period he may be a candidate for the presidency after the general elections, in the event Golkar does not want to elevate a younger person, e.g., Akbar Tandjung. Habibie and Akbar Tandjung could be (partly) seen representing the ICMI and HMI (i.e., Islam based organizations) aspiration, that is, more empowerment of the moslem majority in social and political life, and a greater role in business. On the other hand, other prominent Islam leaders, such as Gus Dur, Amien Rais and Yusril Mahendra, are setting up new parties, while the old PPP is still there. Hence, one may speculate that the Islam influence will be in ascendance, but what shade of goals and policies will make an impact in the years to come is not clear at the moment. For the time being, the Habibie government has scored well in international (aid) relations, and more aid dollars will be forthcoming than earlier expected. There is also willingness among a number of bilateral donors, e.g., the U.S. and European countries, to agree on a roll-over of principal in debt-service-payments (i.e., non-interest payments) as a substitute for new aid in cash. However, the major creditor parties, i.e., the multilateral institutions and Japan, cannot be counted in this option. But if the government need not to pay an amount of principal to the tune of $1.25 billion, that will go some way in reducing the requirement for financing the swollen budget deficit in a non-inflationary way. The Habibie government, however, have not yet succeeded in returning private flows. The market still is giving the thumbs down, because of lingering political instability, insufficient security on the ground for many investors (the risk of looting and seizures, workers actions, hijacking of shipments, etc.), while the fears of the Chinese still have not died down. The rate of exchange of the rupiah remained weak through most of July, at a level around Rp 14.000. There is actually one piece of encouraging news. Department of Industry and Trade revealed that total exports during the second semester of 1998 increased by 1.53% compared to similar period last year, amounting to US$28.4 billion. Non-oil exports did even better, i.e., increasing by 3.06%, reaching US$23 billion. Because of world prices, oil and gas exports decreased by 4.56%, becoming US$5.4 billion. If these departmental figures are true (have to be compared with Bureau of Statistics) then this (non-oil) export performance is not too bad, given economic downturn in most of East and Southeast Asia. For the whole of 1998 it is estimated that non-oil exports may reach $45.5 billion (an increase by 8.75%) and oil-and-gas exports reaching $11.1 billion, down by 4.16%. Total exports of $56.6 billion is not bad at all under the circumstances. The question often asked now is: why couldn't these dollar revenues not strengthen the rupiah? No wonder that some restriction of the otherwise completely free foreign exchange regime is being advocated. Some are suggesting to have a temporary two-tier system, with a pegged rate for current account transactions, while all others will have to pay the free market rate. Since 1982 exporters need not to surrender their export proceeds. A surrender requirement for these proceeds is now also being pondered. But the government has decided to refrain from modifying the present system, so long as the market confidence is not turning positive. Capital flight may be reinforced if the government start tinkering with the exchange system. The budget revision has drawn much comment domestically, but it does not have real economic significance. The figures are revised mainly because the exchange rate has further weakened, from Rp 4000 at the start of the year, to Rp 5000 and now to Rp 10,600. The new budget also reflects the size of the deficit and the gap that has to be financed by foreign funds so as not to create a hyperinflation. Fortunately, the IMF and other donors are supportive to this idea. Hence, whatever happens, a less than 100% rate in inflation is plausible for 1998. Official flows will prevent the rupiah from further sliding. The long wait is still for a resumption of private flows. How market confidence has to be restored is everybody's puzzle, including to (IMF) Hubert Neiss . |
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