SURVEY OF RECENT DEVELOPMENTS

Revised estimates of food agriculture output and strong growth in non- oil manufacturing pushed reported economic growth during 1992 to a str ong 6.3%, despite a sluggish international economy and a fall in oil p roduction. But a largely unexplained stagnation of non-oil and gas exp orts during the first half of 1993 gives some cause for concern. Impor ts have remained flat during most of the year, so that the trade surpl us remains substantial, thus allaying earlier fears of a surge in the current account deficit Failing interest rates are, however, expected to fuel domestic demand, slow down exports and boost imports. The curr ent account deficit may therefore increase later this year. Lower inte rest rates are expected to result in reduced net capital inflow. Indon esia's foreign exchange reserves should be more than sufficient to abs orb these disturbances. Good rice harvests and increased buffer stock management costs are the main factors explaining Bulog's continuing fa ilure to maintain farmgate rice prices at intended levels. This adds f urther weight to arguments in favour of agricultural deregulation. Alt hough interest rates have continued to fall, the state banks have been holding back on new lending, to try to meet increasingly tough pruden tial bank ng requirements. Private banks, on the other hand, are rapid ly increasing lending, which may suggest growing business confidence. Another such sign is the rapid expansion of activity on the jakarta St ock Exchange. A considerable fall in foreign direct investment approva ls during 1993 has triggered widespread anxiety about Indonesia's abil ity to Continue to attract foreign capital. For some months, there had been peculation about a new deregulation package which would help to woo foreign investors. Such a package was finally announced on 23 Octo ber. One complaint of both domestic and foreign investors has been the insecure supply of electricity. Projected economic growth during Repe lita VI will require an enormous expansion of electricity generation c apacity, which the state electricity company will not be able to deliv er. The involvement of private investors is crucial, but remains stall ed by ongoing negotiations on pricing of the output from the first maj or private power generation project, at Paiton. The policies of Minist er Habibie and some of the country's private conglomerates continue to stir controversy, especially following the release of two World Bank reports which discuss these issues in forthright terms.