Wed, 19 Nov 2008
Finance Minister Sri Mulyani Indrawati says Indonesia's economic growth may fall to as low as 5% next year, according to Bloomberg News. She also warned that Indonesia was at risk from global trends but hoped to stay out of an International Monetary Fund (IMF) emergency package.

“It will be very, very challenging for us to maintain growth under the current circumstances,” Indrawati told Bloomberg in an interview in Sao Paolo. ”Just like other developing countries, we have to be prepared for a longer period of weakening in the economy.”

Bank Indonesia (BI) was also gloomy on growth prospects. Deputy governor Hartadi A. Sarwono also said the economy may expand only within the 5% range next year, less than the 6% expected in the 2009 state budget, as demand for exports is likely to fall because of the global economic downturn.

“Economic growth may be between 5.3% and 5.4% as the world's economy is slowing down. A growth of within the 5% range in 2009 is good enough," Sarwono said.

National Planning Minister Paskah Suzetta said the government expects economic growth to slow to between 5% and 5.8% next year. "We will definitely rely on government spending for economic growth next year,'' Suzetta said. “We will speed up government projects.''

Indrawati, speaking to Dow Jones in a telephone interview from Washington where she is attending the G-20 meeting, continued her practice of maintaining openness about the problems facing the country by saying that Indonesia would need to be careful to stay out of the IMF emergency program.

She stressed that in the current uncertain circumstances, no policymaker in any country can say with real certainty what the economic situation will be, even a couple of months ahead.

"If we are careful enough, and we don't (encounter) any major shocks, hopefully we can withstand the challenges," Mulyani said when asked if Indonesia will need to approach the IMF for aid under a special program.

She said that as an emerging market economy Indonesia is very exposed to global events and could definitely be severely affected by any further negative developments in international finance.

Bank Indonesia is "paying very close attention to the rupiah," which is "a little weak against the dollar," she said. The bank will ensure "it doesn't deviate from other emerging countries' currencies," she added.

Dealers say the bank has recently reduced intervention in the foreign exchange market after spending nearly $7 billion last month to support the rupiah, which has fallen 20% against the dollar since the beginning of the year. Central bank Governor Boediono said Friday that the government will take a $2 billion offshore loan in December to boost the country's foreign exchange reserves.

Indrawati said Indonesia's economic structure was still in a "very strong position" with good momentum in growth, but that global financial developments could have significant second-round effects on the economy.

"Growth certainly has much bigger downside risk" due to the impact of the international financial crisis on exports and investment, she said. "Global capital inflows are likely to be seriously reduced over the next year or so."

At BI, Boediono told a press conference on Friday that there was no truth in rumors that there has been a run on several banks with depositors rushing to withdraw funds. He said the Indonesian banking industry is "solid and stable".

"We categorically state that such rumors are baseless," he said. The rumors were apparently sparked by the failure of a small local lender PT Bank Century to settle interbank obligations early Thursday due to the late filing of a clearing document.

Boediono said that the central bank is ready to meet any cash demand by commercial banks and BI said operations at Bank Century had returned to normal on Friday and there was no threat to the banking sector.

In Washington, President Susilo Bambang Yudhoyono said leaders at the Group of 20 summit meeting at the weekend must deliver quick results in order to restore financial stability and confidence, Reuters reported on Friday.

"We need to quickly restore confidence and stabilize the financial markets, protect the real economy and reform the financial architecture," he said.

"We will have to make sure that this process produces immediate results sooner rather than later," Dr. Yudhoyono said in a luncheon speech in the US capital.

He said that he would use Saturday's White House gathering of leaders to "press the need for coordinated and concerted action at the national, regional and global level to redress the liquidity squeeze, restore confidence and protect the real economy."



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