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Like its predecessor, the Soeharto Government`s third five-year plan, Repelita III, has been overtaken in its early months by a huge increase in fiscal receipts and export earnings from oil. This windfall, carrying potential for disruption of economic stability similar to that of 1974, becomes available while the economy is still recuperating from the trauma of devaluation and adjusting to large increases in world market prices for non-oil exports.
The increase in consumer prices during 1979 is close to the high levels experienced during the 1972-1974 worldwide commodities boom. The price increases are more or less inevitable consequences of last November`s devaluation and related economic policy measures. The authorities so far have been able to prevent the new oil revenues from adding fuel to the flames.
National accounts data released recently reveal 1978 as a year of strong, broadly-based and non-inflationary growth. Gross domestic product in constant prices is estimated to have expanded by 7.2 per cent despite a decline in real output in the large petroleum and mining sector. Growth was led by exceptionally strong expansion in the agricultural (7.2 per cent) and manufacturing (14.8 per cent) sectors.
The persent year is shaping up as one of the weaker years of the 1970s for growth in the volume of output. Agricultural production is expected at best to register only a slight increase from 1978, due mainly to static rice production. There will be little growth in the important mining sector. Manufacturing seems to be continuing its strong growth of recent years, with large plants producing steel, cement and fertiliser coming on-stream in 1979, and relatively low strong in demand for consumer goods on Java being balanced by strong demand in the outer islands. Among the major non- traded goods and services, growth in construction, administration, retail trade and services all seem to have been hampered by devaluation and the associated policy adjustments.
While the short-term economic outlook is outlook is troubled, there are signs of long-term economic strength. Responding to improved relative costs after 1977, there was strong growth in exports of labour-intensive manufactured goods through 1978. This has continued and accelerated in 1979 following the devaluation. If the trends of the past two years are maintained, exports of manufactured goods could make an increasingly significant contribution to the alleviation of poverty on Java and to the simultaneous maintenance of relatively high growth and balance in external payments in the face of the expected slower growth of petroleum exports.
There are further reasons for greater confidence in the medium and long-term future, notably an improved outlook for the natural resource sector and evidence of firmer national financial control. Recent developments suggest improved prospects for exports of natural resources (other than crude petroleum) and for resource processing, while higher international prices are likely eventually to generate larger volumes of crude petroleum production. The fiscal revenues associated with the recent oil prices increases have put national financial control to its greatest test since 1975. There has been little of the extravagance in public expenditure that was so damaging to economic stability through 1974 and 1975.
The Government has enforced considerable restraint on expenditure through the unsettled post-devaluation period. The success of this effort demonstrates a great deal of political confidence and control. The inflation early in the year provided a rallying point for wide-ranging criticisms of official economic policy, and especially of foreign borrowing (on nationalist grounds), of inequitable income distribution and corruption in government. This challenge to government policy has passed its peak, at least for the time being. The President devoted ten of the sixty pages of his Independence Day address to defence of foreign borrowing, and much of the remainder to warnings about the threat that `outside ideologies`, notably `liberalism`, posed to social cohesion in Indonesia. Indonesia needed to redouble its efforts to establish a `panca sila economy`, in which social justice rather than the accumulation without limit of personal wealth was the touchstone of valid economic behavior. Senior economic officials have been spending a great deal of time in` panca sila classes`. In late September, the Minister for Defence, General Jusuf, announced that all members of the armed forces must divest themselves of business activities or resign, a move that was greeted with acclaim and some scepticism and the results of which will be watched with great interest. |
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