BI sees 4.5% to 5.5% growth in 2002

JAKARTA (JP): Bank Indonesia predicted that the economy would enjoy higher growth of between 4.5 percent and 5.5 percent in 2002, compared to between 3 percent and 4 percent estimated for this year.

Speaking at a hearing session with the House of Representatives Commission IX on state budget and finance on Tuesday, Bank Indonesia Governor Sjahril Sabirin said that inflation next year would decline to a range of between 7 percent and 9 percent from between 8 percent and 10 percent in 2001.

Sjahril said that the exchange rate of the rupiah could strengthen to between Rp 8,000 and Rp 9,000 per U.S. dollar.

He added, however, that this macroeconomic target could be achieved only if social and political problems were resolved and that the economic restructuring program could be accelerated.

He particularly cautioned the slow progress in the restructuring of corporate overseas and domestic debts and in the restoration of the banking intermediation role that was still creating "serious" uncertainty in the economy.

Sjahril said that an improvement in the world's economy next year would have a positive effect on the local economy.

He said that domestic economic growth in 2002 would be driven by exports, consumption and investment.

He said that a stronger exchange rate of the rupiah next year would help pull down inflation.

Elsewhere, Sjahril said that the macroeconomic condition had not improved as significantly as expected at the beginning of this year due to the increase in risk and uncertainty.

He explained that the slow progress in the corporate restructuring program, deterioration in relations with the International Monetary Fund (IMF) and the worsening domestic political conditions had caused confidence in the economy to continue to plunge.

He added that economic slowdown in the world economy had also badly affected the local economy.

The worsening macroeconomic condition had prompted the government to revise the 2001 state budget and adopt painful measures, including raising fuel prices by an average of 30 percent, and electricity rates by 17.47 percent to prevent the budget deficit from widening to a dangerous level of 6 percent of gross domestic product (GDP).

The budget now assumes an economic growth of 3.5 percent, inflation of 9.3 percent, and an exchange rate of 9,600 per dollar.

Separately, Bank Indonesia deputy governor Achjar Iljas said that the government might fail to achieve its 9.3 percent inflation target if the rupiah continued to weaken.

The rupiah is currently hovering at Rp 11,365 per dollar as investors continue to be jittery about the outcome of the People's Consultative Assembly's (MPR) plan to impeach President Abdurrahman Wahid on Aug. 1.

"It will be difficult to achieve the target, given the unfavorable circumstances," he said.

Economists predicted earlier that inflation this year could hit double digits of around 14 percent as the rupiah remained under pressure.

The lower value of the rupiah against the dollar increases production costs because the country's production system largely depends on imported raw materials and components.

But earlier on Monday, Coordinating Minister for the Economy Burhanuddin Abdullah expressed optimism that the government could achieve its 9.3 percent inflation target, citing improvements in the domestic political climate and better relations with the IMF, which is providing a multibillion dollar bailout for the economy.

Burhanuddin said that inflation in the first semester was normally high, but would decline in the second semester.(rei)