Michael Richardson, Jakarta – Strong economic growth forecast for Indonesia in 1997 along with a projected increase in exports and lower inflation are likely to push stocks significantly higher this year, market analysts say, despite lingering investor concerns about possible instability when President Suharto, the country's aging ruler, leaves the scene.

The benchmark composite index of the Jakarta Stock Exchange ended 1996 at 637.43 points - up 24 percent for the year, with much of the gain occurring in the last quarter as more of Indonesia's emerging middle class bought shares for the first time. The index jumped 1.3 percent, or 8.09 points on Friday, to 646.19, its highest level in more than six years.

Kleinwort Benson Research (Asia) Pte. in Singapore expects economic growth of about 7.5 percent in Indonesia in 1997, after adjustment for inflation, and an increase in corporate earnings of 24 percent. Those factors, Kleinwort predicted, will help the Jakarta composite index reach 750 by the end of the year.

"We believe growing local investor participation deepens and strengthens the stock market," said Hugh Peyman, Kleinwort's head of strategy and economics. "The next 12 months is likely to see a lull in political activity, while the economy will remain on track. This should provide fertile ground for domestic bulls to drive the market up. Foreigners should ride the local investor wave."

Until recently, foreign institutional investors and wealthy ethnic Chinese, who form a small but economically powerful minority in Indonesia, have dominated trading on the Jakarta exchange.

Now brokers say that domestic Indonesian investors, including increasing numbers of professionals, owners of small-and medium-sized businesses, and others in the middle class, are investing in stocks.

Deregulation of Indonesia's economy since the 1980s has spurred a wide range of business activity. As a result, the middle class, defined in Indonesia as those with an annual income of between $6,000 and $12,000, has grown and now comprises about 17 million people out of a population of 190 million.

"The rate of change in Indonesian society has major economic implications," said an Indonesian banker. "In the early 1990s, the middle class consisted almost entirely of 6 million ethnic Chinese."

Brokers began to notice the entry of significant numbers of new Indonesian investors when the state-owned telecommunications company, PT Telekomunikasi Indonesia, went public in late 1995.

The local investor wave gathered further strength in November when PT Bank Negara Indonesia, the first government-controlled bank to list its shares, offered shares priced at just 850 rupiah (36 cents).

PT Bank Negara was oversubscribed almost 4.5 times as middle-class buyers scrambled to secure shares, brokers said.

David Chang, research director at PT Vickers Ballas Tamara, said the Jakarta stock market should benefit in 1997 from reduced interest rates as well as strong macroeconomic fundamentals, despite some concern about the possible impact of legislative elections in May and a presidential poll in 1998. Mr. Suharto, 75, has been in power since 1965 and has no obvious successor.

Ginandjar Kartasasmita, Indonesia's minister for national development planning, last week forecast a 1997 economic growth rate of 7.9 percent, up from an estimated 7.6 percent for 1996, but down from the 8.1 percent growth recorded in 1995, when concerns about overheating emerged.

Separately, Tunky Ariwibowo, the minister for trade and industry, said that there would be a substantial improvement in the country's export performance this year, while demand for imports would slow.

Mr. Suharto, who will present the annual budget next week, said Tuesday that inflation for 1996 would be about 6.7 percent, down from 8.6 percent for 1995.