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)