Bank Indonesia forecasts 4 percent growth this year

JAKARTA (JP): Bank Indonesia (BI) predicted on Wednesday an economic growth of 3 to 4 percent and an inflation rate of 3 to 5 percent for this year.

In its report on policy direction for 2000, the central bank forecasted that the rupiah would stay stable at about Rp 7,000 to the U.S. dollar.

The relatively low inflation rate and stable rupiah should give more room for the central bank to lower its benchmark interest rate further, the report said.

To achieve those targets, the central bank aims to control the growth of base money by 8.3 percent this year.

"Entering the year 2000, the process of Indonesian economic recovery gains greater momentum in line with improvement in various sectors, especially the domestic political and economic fronts," BI said in its report.

BI projected gross domestic product growth of 0.1 percent for 1999, compared to a contraction of nearly 14 percent at the peak of the financial crisis in 1998.

The central bank also projected an inflation rate of 2.01 percent last year, down from hyperinflation of 78 percent in 1998.

BI, however, warned that its estimate for the inflation rate in the current year did not yet include any increases in fuel and power prices, civil servants' wages or import duties on rice and sugar.

"Those government policies are projected to result in an increase of 2 percent in the inflation rate," it said.

To help contain inflation, BI will control the growth of base money by 8.3 percent through improved open market operation. BI will also control the flotation of government bonds held by commercial banks in the market. Banks will be allowed to sell up to 10 percent of their total bond holdings.

At the same time, BI will also continue its policy of keeping interest rates low to help revive the banking industry and also the real sector, which will thus stimulate economic growth.

BI noted that the growth of the country's gross domestic product this year would be driven especially by increasing domestic consumption and investment, as well as rising exports and imports.

Private consumption is expected to grow by 3 to 4 percent, while government consumption should rise by 5 to 6 percent.

Private investment is predicted to rise 1 to 2 percent while government investment will grow by 2 to 3 percent.

BI expected exports of goods and services to rise 1 to 2 percent this year, while imports should grow 11 to 12 percent.

Despite the rapid growth of imports, the country will still record a positive current account surplus this year, but it will be lower than the $5.2 billion recorded in 1999.

BI Governor Sjahril Sabirin said the announcement of the damning audit report on the central bank by the Supreme Audit Agency should not affect the central bank's ability to achieve those targets.

"The results of that audit will not affect BI in performing its duties as the central bank," Sjahril said.

BI senior deputy governor Anwar Nasution said he saw no reason not to be optimistic that BI would be able to maintain macroeconomic stability this year as it did in 1999.

He said BI did a good job last year in controlling inflation to about 2 percent from 78 percent in 1998, maintaining the stability of the rupiah at the Rp 7,000 level to the dollar and lowering its benchmark rate to over 11 percent from over 35 percent at the end of 1998.

"All indicators give good hope. All economic players, including BI, should also give good hope," Anwar said.

Nevertheless, BI warned in its report that the snail's pace of corporate debt restructuring and the delayed recapitalization of the country's rotten banks could hamper the economic recovery process.