Jakarta – Indonesia's economy is facing a rather gloomy outlook for next year on the back of increasing pressures from high oil prices and the heating up of the political situation at home, a seminar was told Monday.
Chairman of the Employers Association of Indonesia Sofyan Wanandi told the seminar that the continued pressure from high oil prices and political factors would cause business uncertainty and deprive the country's economy of its growth potential.
"High oil prices are predicted to put more pressure on the United States economy, which is already troubled by its weak currency and subprime mortgage woes. This in turn will affect Indonesia's exports," Sofyan told a discussion on Indonesia's economic outlook.
The US is one of the nation's top three export destinations. The other two are Japan and Europe.
In the past few weeks, global oil prices have been hovering far above US$90 per barrel and are predicted to break the $100 level very soon.
On Monday, oil prices rose to nearly US$99 a barrel. Meanwhile, light, sweet crude for January delivery added 75 US cents to hit $98.93 a barrel in electronic trading on the New York Mercantile Exchange, midday in Europe.
A higher than assumed oil price would leave the government's state budget under pressure as it would push up accordingly spending for fuel subsidies.
Meanwhile, for many industries, which do not enjoy subsidies but use fuel, high oil prices mean higher production costs, which could eventually be translated into higher prices for their products.
"Any oil price increase will somehow effect the industrial sector because it will increase production costs for industrial activities," he said, repeating the association's estimate that many industries would be forced to raise their prices by up 10 percent in January because of the current oil phenomenon.
Also speaking at the seminar was economist and lawmaker Didik Rachbini, who said that besides affecting the state budget, high oil prices followed by an increase in the prices of industrial products would prop up inflation.
As a result, Sofyan and Didik predicted the economy would not expand as fast as the government has estimated.
"The economy may grow by about 6.2 percent or 6.3 percent in 2008, lower than the 6.8 percent targeted by the government under its budget plan for 2008," Sofyan said.
Beside the oil price, another problem that could affect the performance of the economy next year is the heating of political sentiments prior to the 2009 legislative and presidential elections, Didik said. "The campaign activities for the elections will cause a certain degree of business and economic uncertainty," Didik said.
Sofyan suggested the government accelerate the disbursement of planned development spending as detailed in the 2008 state budget.
"The government should speed up development projects financed by the state budget, in particular those for infrastructure such as roads, electricity and ports, and simplify the long process of investment licensing. "All that money can help boost the economy," Sofyan said. (ndr)