BI forecast economy to grow 4.5-5.5% in 2001

BI forecast economy to grow 4.5-5.5% in 2001

JAKARTA (JP): Bank Indonesia reiterated in its annual report
issued on Thursday that the economy in 2001 was forecast to grow
by between 4.5 percent and 5.5 percent.

The central bank said that the growth forecast was based on
the assumption of an acceleration in the implementation of the
program of key economic reforms, and improvements in the
political and security condition at home.

"Bank Indonesia believes that the economic recovery process in
2001 will gain strength and economic growth could reach 4.5
percent - 5.5 percent," the central bank said.

The economy grew by 4.8 percent as measured in terms of gross
domestic product, last year for the first time, after the economy
contracted by nearly 14 percent in 1998, following the
devastating economic crisis.

Last year's economic growth was mostly spurred by exports and
investments.

But with the prospect of slower economic growth in the U.S.
(Indonesia's largest export market), and continuing social and
political unrest at home which could affect investment, some
analysts said that economic growth this year would be slower.

Bank Indonesia also forecast core inflation to reach between 4
percent and 6 percent this year versus 9.3 percent last year.

It said that if the planned increases in government-controlled
prices were taken into account, it could contribute another 2
percent - 2.5 percent.

The government plans to raise fuel prices by an average of 20
percent this year, possibly in April, and also to raise
electricity tariffs in June.

Bank Indonesia said that to achieve the inflation target,
currency in circulation was projected to grow by 11 percent - 12
percent this year.

The central bank also reiterated it would maintain its tight
monetary policy in a bid to achieve the low inflation target.

The government earlier called on Bank Indonesia not to let its
benchmark interest rate move too high as it could inhibit
economic growth and threaten the banking sector.

Some banks have expressed fears that they could suffer
financial bleeding again due to negative spread problems if
interest rates continue to move higher.

The benchmark interest rate of one-month Bank Indonesia SBI
promissory notes moved slightly higher on Wednesday to 14.79
percent, which helped prevent the ailing rupiah fall further
against the U.S. dollar.

The figures in the annual report had mostly been reported at a
press conference earlier in January.

Elsewhere, Bank Indonesia said that there were at least seven
risk factors that could become a threat to its macro-economic
target.

These include persistent political and security uncertainty at
home, slow progress in corporate debt restructuring, banking
intermediary functions which have yet to run normally, continuing
legal uncertainty, and the prospect of slower economic growth in
the U.S.

Bank Indonesia did not mention its target for the exchange
rate of the rupiah, but earlier in January it forecast the rupiah
to appreciate to between Rp 7,750 - Rp 8,250 per U.S. dollar.

The local unit has recently dropped to near the Rp 9,900 level
amid ethnic violence in Central Kalimantan which has killed
hundreds of people.

The rupiah was trading at around Rp 9,860 per dollar late on
Thursday compared with Rp 9,855 on Wednesday.

The central bank new forex ruling introduced in the middle of
January, which bans the lending of rupiah to non-residents to
help speculation against the currency, has helped in reducing the
volatility of the local unit. (rei)