BI upbeat on 2004 growth despite election

The Jakarta Post, Jakarta

Bank Indonesia Governor Burhanuddin Abdullah expressed optimism that the economy could grow higher at around 4.8 percent in 2004 despite the election year.

Burhanuddin is also convinced that the election process would go smoothly because there are no clearly dominant political parties in the election, a situation that will force parties to form coalitions and lessen friction between themselves.

"If there is no friction, then the election will be orderly and safe. There may be some small internal party friction, but that can be controlled by the party itself. So the 2004 general election will be peaceful and calm," he told reporters on Monday at a post-Idul Fitri press conference.

He also said that the election period would provide a further boost to domestic consumption because of stronger consumer spending particularly during the campaigning period.

Domestic consumption has been the country's main engine of growth during the past four years amid weak investment and export performance.

The government in the 2004 state budget has targeted the economy to grow by 4.8 percent, from the estimated 4 percent for this year, particularly if strong domestic consumption continues.

But some analysts have previously warned that domestic consumption could likely slow down next year as the people's purchasing power had started to weaken due in large part to the rising number of unemployed people as companies continued to put investment on hold in some case, and others have moved away to other countries, which have a better investment climate.

There is also concern that the 2004 general election, a seven- month process, will make companies shy away from further investment and other spending. It will be the country's first direct presidential election, which some fear could turn chaotic.

Burhanuddin acknowledged that there had been rising questions on the sustainability of domestic consumption to maintain economic growth.

He said that the central bank will conduct more research on the economy's prospects as it relates to decentralization.

"We'll ask (our staff) to do more research to determine whether there has been a positive impact from the regional autonomy and fiscal decentralization on the people's finances, which determine their consumption level," he said.

He said that sustainable economic growth should not rely solely on consumption, but must also be supported by a healthy investment performance, which can create jobs.

Analysts have said that the country's economy ideally needs to grow at a minimum of pre-crisis levels of between 6 percent and 7 percent in order to create enough jobs for the tens of millions of unemployed people.

On inflation, Burhanuddin said that the consumer price index would be in the range of 6 percent and 7 percent next year.

He said that despite the relatively low inflation, there would not be much room for the central bank to continue to lower its benchmark interest rate amid a recovery in the economies of the U.S., Europe and Japan. Their economic growth will put the brakes on the downward trend in global interest rates.