Boediono optimistic on economy

Boediono optimistic on economy

Jerry Norton and Dean Yates, Reuters, Jakarta

Indonesia's finance minister expressed optimism over the
economy on Friday, insisting the government was delivering on
policy and changing perceptions about how investors view the
world's fourth most populous nation.

In a rare interview, Boediono said the government did not want
to seek another debt rescheduling with the Paris Club of official
creditors after securing a US$5.4 billion deal last week.

But Indonesia would need close coordination with the IMF on
economic policy when an existing $5 billion loan program with the
Fund expires at the end of next year, Boediono added.

Indonesia has struggled to rebuild its economy and banking
sector after being savaged by the Asian financial crisis in the
late 1990s, which required an earlier bailout from the
International Monetary Fund and other foreign donors.

"I think everybody's reading is that we have been experiencing
a turnaround in psychology, perceptions and climate in the past
few months," said the soft-spoken Boediono, respected by donors
and foreign investors alike.

"We have been quite consistent in implementing what we say we
are doing in terms of economic recovery. I think bit by bit, the
public and the market seems to be giving us their confidence."

Indonesia's stock market has traded near two-year highs in
recent weeks while the rupiah -- once one of the world's most
volatile and unsteady currencies -- has appreciated around 10
percent against the U.S. dollar since the end of last year.

Boediono said increased confidence was also evident among
creditor nations at the Paris Club meeting on Indonesian debt
although all-night negotiations were involved.

"Right from the outset we sensed general support for our
program but of course because we requested extra" it took some
lengthy talking.

Analysts generally agree Indonesia got exceptionally good
terms. Creditors "were quite comfortable with the way we were
implementing our economic program," Boediono said.

He said Indonesia's gross domestic product should grow at
least four percent this year and five percent in 2003.

While four percent this year is in line with the budget, the
Asian Development Bank has predicted growth of just three
percent. Growth in 2001 was 3.32 percent.

Boediono was more optimistic than some analysts about consumer
spending, the critical engine of economic growth last year,
continuing strong until a recovery in export demand kicks in from
a hoped-for U.S. and global economic recovery.

"I think for this year consumption spending will still be a
significant factor...I think the tapering off will come but it
may not be until next year," he said.

For the next several years, Boediono added, annual growth
should be between five and six percent.

That might not be optimal but should be enough to cope with
critical challenges like keeping unemployment from mushrooming
and avoiding the creation of artificially high levels or
"bubbles" in the share and property markets, he said.

Asked if the recent gains in Indonesian share prices and the
rupiah currency were justified by fundamentals, Boediono said:
"Definitely yes. All our assets are underpriced".

While declining to specify a level he also said he personally
saw room for further rupiah appreciation without any need for
tightening the country's monetary stance.

Interest rates could move lower, Boediono said, toward 14
percent for benchmark Bank Indonesia three-month certificates
(SBIs), now over 16 percent.

One factor that has cut some slack for Jakarta's financial
markets was last week's agreement by the Paris Club of official
creditors to reschedule more of Indonesia's huge foreign debt,
the third pact since the late 1990s.

Boediono said the government did not want another.

Indonesia is burdened with total foreign debt of some $140
billion, around the same as annual GDP.

"Our desire is not to go back (to the Paris Club) but
certainly of course it depends on our performance and the overall
situation at the time," Boediono said.

Asked how long Indonesia needed an IMF program, he said:

"Close coordination with them in terms of our economic policy
will be needed beyond 2003" when the current program expires. He
declined to be drawn on details.

Boediono also said he did not see much impact from a likely
downgrade by Standard and Poor's of Indonesia's sovereign credit
ratings to "selective default" due to private debt affected by
the Paris Club deal.

S&P has said such a downgrade was imminent over Jakarta's
plans to reschedule $340 million in official debt owed to private
creditors per a pledge to the Paris Club to seek comparable
treatment from that sector.

Private creditors were being contacted about that proposal now
but a meeting of the London Club, the private creditor equivalent
of the Paris Club, on the issue may still be some months away,
Boediono said.

The government is trying to move back toward the black by,
among other things, collecting billions it is owed by former bank
owners who got emergency loans in a largely failed attempt to
shore up the troubled sector at the height of the Asian financial
crisis in the late 1990s.

Boediono warned the bankers the government meant business in a
new scheme being devised to collect the cash.

"It's backed by rather solid political support from within the
government and the legislature. I think the most important thing
is this political resolve or political will, which was not there
before," Boediono said.

"We mean business when we say that we will give penalties."

A higher recovery rate on the debts is seen as critical both
to satisfy the IMF and creditors and to help plug a budget
deficit targeted at 2.5 percent of GDP this year.

Boediono also played down concerns a delay in issuing the
country's first treasury bills, the proceeds of which will be
used to refinance bank recapitalisation bonds maturing this year,
would hurt the budget.

The T-bills auction could be conducted by July as parliament
was expected to approve a sovereign securities law by then, he
said.

The cash-strapped government would also end up posting a lower
actual budget deficit for last year than a targeted 54 trillion
rupiah ($5.74 billion) or 3.7 percent of GDP, Boediono added. He
gave no figures.