2005 growth could be as low as 5.2%, Miranda says

2005 growth could be as low as 5.2%, Miranda says

Urip Hudiono, The Jakarta Post, Jakarta

Indonesia's economy will likely wrap up the year with growth of
only between 5.2 percent and 5.6 percent, the central bank says,
as it continues to slow due to inflation that is set to remain
high at 16 percent until the year's end.

"We expected the economy would grow higher than last year, as
economic activity would still increase over this year's two
remaining months, but it will be lower than we had previously
estimated," Bank Indonesia (BI) deputy governor Miranda S. Gultom
said at a seminar on Thursday.

Indonesia's gross domestic product (GDP) grew by 5.13 percent
to Rp 2,303 trillion (some US$230 billion) last year, and had
been targeted to further expand by 6 percent this year.

The economy has expanded at a slower rate in the last three
quarters, with rising inflation and interest rates after fuel
price hikes in March -- even before the sharp increase of Oct. 1
-- dampening consumption. GDP only grew by 5.34 percent on year
to Rp 2,012 trillion during the third quarter, lower than the
5.84 percent and 6.12 percent during the second and first
quarters, respectively.

This has prompted several officials to revise their forecasts,
including the finance minister.

Separately, Minister of Finance Jusuf Anwar said that the
economy would only grow by between 5.5 percent and 5.8 percent
this year.

The government is expecting economic growth of 6.2 percent for
2006.

Miranda said reaching 6.2 percent economic growth for next
year was possible, but that it would require extra efforts from
the government, especially in improving Indonesia's exports and
investment climate.

"The world's trade sector has actually grown by 7 percent to
7.4 percent this year, so if we can tap into this trend, we can
expect higher growth next year," she said. "The government must
also realize more of its programs and project loans, which this
year only saw half of it being used."

Meanwhile, on the inflation rate, the central bank expects
this year's inflation rate to remain high at between 15 percent
and 17 percent.

"This year's inflationary pressure will be higher than we had
expected. We expected inflation to reach 16 percent plus-minus 1
percent," Miranda said.

The central bank, however, expects inflation to ease to single
digits by next year's fourth quarter.

"We predict inflation of 8 percent or 9 percent by the end of
2006, after staying in double digits until the third quarter of
this year," Miranda said.

Elsewhere, Standard Chartered economist Fauzi Ichsan saw
Indonesia's economy expanding by 5.5 percent for both this year
and next year.

"The key to this, however, is more government spending to spur
the economy, as well as more foreign direct investment," he said,
explaining that GDP growth would remain sluggish until next
year's first semester, before pacing up on more spending.

In line with BI, by next year Fauzi foresaw inflation easing
to 8 percent and the rupiah at Rp 9,500 to the dollar on the back
of better macroeconomic stability.