BI predicts lower growth this year<\/p>\n
JAKARTA (JP): Bank Indonesia announced on Wednesday that
\neconomic growth this year might be lower than its initial
\nprojection of between 4.5 percent and 5.5 percent due to economic
\nslowdown in the U.S. and Japan and continuing domestic political
\nand security problems.<\/p>\n
Bank Indonesia deputy governor Achjar Iljas said that growth
\nin the first quarter was already lower than expected.<\/p>\n
"Economic growth in the second quarter of 2001 is expected to
\nbe even slower (again). This is due to various problems and risk
\nfactors encountered during the previous quarter which are
\nexpected to prevail with greater magnitude...," Achjar said at a
\nmedia conference, which featured the public unveiling of Bank
\nIndonesia's first quarter report.<\/p>\n
"Given this trend, economic growth (this year) is expected to
\nbe lower than the 4.5 percent to 5.5 percent projection made
\nearlier this year," he added.<\/p>\n
He did not provide the first quarter gross domestic product
\n(GDP) figure, nor the full year revised projection.<\/p>\n
Some analysts warned earlier that this year's GDP growth might
\nbe lower than the central bank's January projection.<\/p>\n
The economy was badly hit by the financial crisis that started
\nin the middle of 1997 with GDP contracting by nearly 14 percent
\nin 1998. The economy started to recover in 1999 with relatively
\nflat growth, but GDP last year expanded by 4.8 percent, well
\nabove most projections, driven by strong export performance and
\nprivate consumption.<\/p>\n
In the 2001 state budget, the government forecast economic
\ngrowth at 5 percent, fueled mainly by investment and exports.<\/p>\n
But Bank Indonesia said in its latest report that exports and
\ninvestment performance might be weaker than anticipated.<\/p>\n
The central bank said that the economic slowdown in the U.S.
\nand Japan, Indonesia's largest markets, would affect exports,
\nwhile political and security problems at home would hinder growth
\nin investment as well as consumption.<\/p>\n
"From the supply side, slower production will be reflected in
\nthe declining performance in the manufacturing sector," Bank
\nIndonesia said.<\/p>\n
The central bank said that this year's economic development
\nwill also depend on the ability of the government to resolve
\nmajor issues, including ensuring social, political and security
\nstability, and improving relations with the International
\nMonetary Fund (IMF).<\/p>\n
It added that the halt in gas production by U.S. giant
\nExxonMobil in Aceh due to security concerns would cause a serious
\nimpact on the state budget if the shutdown continued until the
\nend of this year.<\/p>\n
Some fear that the state budget will suffer a greater-than-
\nexpected deficit due to the weakening of the rupiah and a rising
\ninterest rate.<\/p>\n
"However, there is still a chance for economic activities to
\nblossom if the government can resolve the social, political and
\nsecurity instability ... Another critical factor is linked to
\nreaching agreements with the IMF and other donors...," Bank
\nIndonesia said.<\/p>\n
An IMF team arrived late on Tuesday to commence talks with the
\ngovernment over the key economic reform program. Relations with
\nthe IMF turned sour after the fund canceled the disbursement of
\nits next US$400 million loan tranche late last year due to signs
\nof the government wavering in the implementation of the IMF-
\nsponsored reform program.<\/p>\n
The delay in the IMF loan tranche had contributed to the fall
\nof the rupiah to a 30-month low of around Rp 11,500 per U.S.
\ndollar last month.<\/p>\n
Bank Indonesia said in the report that the drop in the rupiah
\nhad subsequently created inflationary pressure.<\/p>\n
In a bid to achieve its 2001 core inflation target of between
\n4 percent and 6 percent, Bank Indonesia said it would maintain a
\ntight monetary policy this year.<\/p>\n
Bank Indonesia has allowed the benchmark interest rate of its
\none-month SBI promissory notes to increase over the past several
\nweeks to help defend the rupiah and curb inflationary pressure.<\/p>\n
The SBI rate increased again to 15.82 percent on Wednesday
\nfrom 15.79 percent the previous week.<\/p>\n
The rupiah ended higher at Rp 10,600 per dollar late on
\nWednesday from Rp 10,690 on Tuesday amid expected positive
\nresults from the talks between the government and the IMF.<\/p>\n
The IMF mission will stay here for two weeks to review the
\nimplementation of the economic reform program. The mission will
\nthen report to the IMF board in Washington before the fund
\ndecides on the disbursement of the third loan tranche from its $5
\nbillion bailout fund.(rei)<\/p>",
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"sponsor": "Okusi Associates",
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