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)