Anwar expects RI economy to grow by 4 to 5% in 2001

Anwar expects RI economy to grow by 4 to 5% in 2001

KUALA LUMPUR (Reuters): Indonesia's acting central bank governor expects the economy to expand by 4 to 5 percent in 2001, lower than the 6 to 7 percent growth rate projected by the new chief economics minister.

"I think for the current year we have forecast four to five percent, and by next year it will be around the same, four to five percent," Anwar Nasution told Reuters in an interview in the Malaysian capital where he was attending a regional conference.

Indonesia's new chief economics minister Rizal Ramli said last week the economy would grow by 6 to 7 percent next year.

The central bank's expected growth of 4 to 5 percent in the current year compares with 0.23 percent in 1999.

Anwar, who said he loved the challenge of trying to set the economy straight, said growth was driven by domestic consumption, exports and the prospect of a bumper crop.

Asked about Rizal's more bullish forecast, the acting governor said: "Well, I think everybody has their own prediction."

Anwar said earlier on Sunday the future of the Indonesian economy hinged on cooperation between Rizal and the central bank.

"I am very much confident in the quality of our new coordinating minister. He's a damn good macroeconomist and also a student activist, young and bright".

Rizal, a respected economist and chief of the state commodities regulator, will be responsible for coordinating the work of the economic ministries, he said.

The appointment of Prijadi Praptosuhardjo as new finance minister has sent shivers through the financial markets. He is a low profile career banker who came to the public eye early this year when the central bank rejected him as unfit to head a state bank.

"Again, even though people are uncertain about the present finance minister, I am very much confident on the coordinating minister," Anwar said.

"I think that the future of economic development of our economy is very much dependent on the cooperation between Bank Indonesia and the coordinating minister".

Anwar, a professor of economics and dean at the University of Indonesia, said inflation targeting would be the cornerstone of monetary policy.

"We will stick to our policy of flexible exchange rate and then stick to using inflation targeting as an anchor of monetary policy and speed up bank restructuring," he said.

The central bank, which under a deal with the International Monetary Fund (IMF) promised a stable inflation rate and flexible exchange rate policy, expects the inflation rate to stabilize around seven percent.

The IMF is helping keep Indonesia's economy afloat with regular injections of cash in return for reforms agreed under a letter of intent.

Anwar, looking relaxed and wearing a batik shirt, said the direction of interest rates would depend on the pace of bank restructuring.

"It is coming down or at least stabilizing around the present level," he said. "Yes, I am very much confident because of the good developments in bank restructuring".

Anwar, who reads as a hobby and keeps fit by working out at a gymnasium, was confident the rupiah would strengthen in coming months and that its recent decline was temporary.

Late on Friday the rupiah was quoted at 8,365/8,385 to the dollar, off of a peak of 8,000 before the cabinet was named.

"Well, there is no point for depreciation of the rupiah. Look, the fundamentals are good and our exports, not only oil but non- oil exports, are increasing. I don't see any deprecation of the rupiah."

Anwar attributed the rupiah's recent fall to non-economic problems. Asked if the currency would strengthen in the coming months, he said: "Yes, I am very sure on that".

Indonesia will regain investors' confidence as it implements a plan to grant power to regional and local governments, he said.

"Indonesia is in a transition period from an authoritarian regime to democracy. We are not only changing the top government but also giving more power to local government," Anwar said.

He said ethnic violence which has rocked the archipelago was expected.

Anwar said with more governing powers, even the rebel province of Aceh could exploit its geographical location to forge economic ties with neighboring Asian nations.