Amadeusz Juskowiak

Indonesia seen at crossroads over economic change

Indonesia appears to be nearing a political crossroads over measures to deregulate its protected economy the US Embassy says in a new report

To counter falling oil revenues the government has launched a series of measures over the past nine months to boost exports outside the oil sector and attract new investment

Indonesia the only Asian member of OPEC and a leading primary commodity producer has been severely hit by last years fall in world oil prices which forced it to devalue its currency by 31 pct in September

But the US Embassy report says President Suhartos government appears to be divided over what direction to lead the economy

It appears to be nearing a crossroads with regard to deregulation both as it pertains to investments and imports the report says It primarily assesses Indonesias agricultural sector but also reviews the countrys general economic performance

It says that while many government officials and advisers are recommending further relaxation there are equally strong pressures being exerted to halt all such moves

This group strongly favours an import substitution economy the report says

Indonesias economic changes have been welcomed by the World Bank and international bankers as steps in the right direction though they say crucial areas of the economy like plastics and steel remain highly protected and virtual monopolies

Three sets of measures have been announced since last May which broadened areas for foreign investment reduced trade restrictions and liberalised imports

The report says Indonesias economic growth in calendar 1986 was probably about zero and the economy may even have contracted a bit This is the lowest rate of growth since the mid1960s the report notes

Indonesia the largest country in SouthEast Asia with a population of 168 million is facing general elections in April

But the report hold out little hope for swift improvement in the economic outlook For 1987 early indications point to a slightly positive growth rate not exceeding one pct Economic activity continues to suffer due to the sharp fall in export earnings from the petroleum industry

Growth in the nonoil sector is low because of weak domestic demand coupled with excessive plant capacity real declines in construction and trade and a reduced level of growth in agriculture the report states

Bankers say continuation of present economic reforms is crucial for the government to get the international lending its needs

A new World Bank loan of 300 mln dlrs last month in balance of payments support was given partly to help the government maintain the momentum of reform the Bank said

REUTER