Survey of recent developments

Indonesia's experience in the first half of 1997 has shown that a country with strong economic fundamentals can survive the political upheaval of a general election and campaign-related riots. The election itself went smoothly, despite riots that led to many casualties. Golkar had its biggest win ever and the PPP did very well, but the PDI barely met the parliament's minimum seat requirement. The impact of the political disturbances on economic indicators has been minimal, but uncertainty about the presidential succession is a persistent source of political instability. Continued strong economic growth of 7.8% last year is expected to be sustained in 1997. Inflation reached its lowest level for 10 years in the first five months of 1997, but there are pressures for post-election price rises. Net realised foreign direct investment recorded another high of $6.5 billion in the fiscal year 1996/97. The official figure for foreign reserves stood at $20 billion in March, equivalent to more than five months of imports. Because of high capital inflow, strong pressure for currency appreciation continues, and the policy of depreciating the rupiah needs to be re-evaluated. The stock market is booming and share prices remain strong despite the disturbances during the campaign, but the growth of non-oil exports has slowed. The Busang row is over, the gold deposits having proved to be nonexistent. The controversy surrounding the national car continues, with Japan, the European Union and the United States formally submitting complaints to the WTO, but there is no sign that the government intends to change the policy Less than three years after the 1994 deregulation of foreign investment, a ban was placed on foreign investment in palm oil, labour force indicators confirm a process of labour market transformation and tightening, labour's freedom to organise remains limited. In other developments, the neu bill on statistics has raised concern about freedom to undertake research; the import, production and distribution of high octane gasoline has been privatised; and new arrangements for customs clearance have slowed processing, leading to fears of a negative effect on trade.