BI forecasts up to 5% GDP growth in second quarter

BI forecasts up to 5% GDP growth in second quarter

JAKARTA (JP): Bank Indonesia predicted on Wednesday economic
growth between 4 percent and 5 percent in the second quarter
compared to the same period last year.

Based on the projection, the gross domestic product could
expand 3 percent or 4 percent for the year, central bank governor
Sjahril Sabirin said.

He identified stability in macroeconomic indicators and
progress in banking and corporate restructuring programs would be
key factors for growth.

"We're quite optimistic that the 3 percent to 4 percent GDP
growth target in 2000 will be achieved," he told a news
conference following the central bank's board of governors
meeting.

The country has been battered by the region-wide economic
contagion which first struck in mid-1997. The economy contracted
more than 13 percent in 1998, but showed slight growth of 0.23
percent last year.

Sjahril said that year-on-year GDP growth in the first quarter
of the year was estimated at about 4 percent.

"The economy continued to expand in the first quarter (2000).
Despite the (remaining political) disturbances, the real sector
has started to roll on because of the (macroeconomic) stability."

He noted inflation remained relatively low for sometime, the
exchange rate of the rupiah against the U.S. dollar was stable
and the domestic interest rate continued to decline.

"All these factors are positive for the business sector. So
despite the disturbances, businesspeople see stability in the
economy."

Sjahril expressed optimism that the inflation target of 3
percent to 5 percent this calendar year would be met.

He said that if the planned increase in fuel prices and the
rise in other government administered prices were taken into
account, inflation was projected to be in the range of 5 percent
to 7 percent.

It will depend on the psychological effect from the increase
in administered prices, he said.

If the impact was prolonged, the inflation rate could reach
from 7 percent to 9 percent.

"But so far, I don't see signs to be worried about," he said.

Sjahril added that the exchange rate of the rupiah to the
greenback also should be taken into account as a weakening of the
local currency would cause imports-generated inflation as
imported raw materials would rise in cost.

He attributed the rupiah's recent weakening to about 7,500 to
the dollar to a brief delay in the implementation of economic
reform programs promised by the government to the International
Monetary Fund in January.

"But I'm optimistic that the rupiah will soon strengthen to a
more reasonable level of around 7,000 per dollar."

He said the drop in the rupiah's value was merely a brief
psychological reaction of the market.

Based on the country's economic fundamentals, he believed the
rupiah should be trading at the 7,000 level or stronger.

Sjahril warned a resumption in bank lending was crucial for
sustainable economic recovery.

"The growth in the business sector during the first quarter
was particularly financed by retained earnings and internal cash
flow obtained from interest rate revenue reaped during the high
interest rate environment."

Sjahril said the growth could not last much longer without a
crucial resumption in bank lending.

"But this will depend on how fast we could complete the bank
and corporate restructuring programs."

He noted several positive developments, including the
recapitalization of state banks and the revitalization of the
Jakarta Initiative Task Force, a debt restructuring body.

Separately, the head of the National Economic Council Emil
Salim quoted on Wednesday Bank Indonesia data that GDP growth for
the 1999/2000 fiscal year ending March 31 was 1.5 percent
compared to the government target of flat growth; the inflation
rate was minus 0.5 percent versus the initial prediction of 17.4
percent; and the average rupiah exchange rate was 7,454 compared
to the assumption of 7,500 per dollar.

Banking sector

Meanwhile, Bank Indonesia senior deputy governor Anwar
Nasution said the country's banking sector made significant
positive developments during the first quarter of the year.

"Our banking sector is now in a much better condition.
There's a tendency toward a more bullish sentiment," Anwar said.

He said the banking industry recorded a positive net interest
rate margin (NIM) of Rp 1.4 trillion compared to a negative NIM
in the same period last year.

Anwar added the improvement in the NIM level was primarily due
to a drop in the domestic interest rate and additional interest
revenues from bank recapitalization bonds.

He said the positive NIM level allowed the industry to book a
net profit of Rp 0.4 trillion in the first quarter of this year
compared to a loss during the same period last year.

Anwar added that although the figure for nonperforming loans
(NPLs) was 32 percent in the first quarter of this year, it was
still much smaller than the 50 percent rate during the same
period last year. (rei)