Boediono says 4.8 percent growth target still realistic

The Jakarta Post, Jakarta

The government is optimistic that the country's economy can still grow by 4.8 percent this year as targeted, despite a weakening currency, rising oil prices and an economic slowdown in China.

"We think that the 4.8 percent growth target is still realistic and can be achieved. We shouldn't be overly worried by short-term changes. Who knows? Things will get better ahead," Minister of Finance Boediono said on Wednesday.

Boediono was responding to current developments in the financial and oil markets.

The rupiah and the local stock market have been on a roller- coaster ride during the past few weeks, particularly due to the prospect of a hike in U.S. interest rates, surging oil prices and a possible hard landing for China's economy as the authorities there try to cool down an overheating economy.

The rupiah, for instance, has declined by around 5 percent against the U.S. dollar over the past month as investors have switched from rupiah-based to dollar-based assets.

The local stock market (as well as other markets in the world) has also been under pressure due to fears of an interest rate hike and surging oil prices, which, earlier this week, jumped to a record high of more than US$41 per barrel.

The possibility of a sharp contraction in China's giant economy has also affected many stock markets in the region as China has become an important export market for many countries.

Boediono, however, expected that the impact of a slowdown in the Chinese economy on the Indonesian economy would be limited.

"Although China is an important market (for Indonesia), it is not top (on the list of the country's largest export markets)," he said.

Indeed, some economists have said that although China has increasingly become an important market for many economies in Asia, it absorbed only around 15 percent of the region's total exports last year.

The government hopes exports can increase their role in accelerating the country's economic growth this year to 4.8 percent from 4.1 percent last year. The economy is projected to grow by 5.5 percent.

On the impact of surging oil prices, Boediono acknowledged that higher prices could inflate the government's budget deficit target as they would imply greater fuel subsidies. The government has decided not to raise fuel prices this year due to the elections.

But he explained that although the fuel subsidy would be greater, the country would also enjoy a windfall profit from rising oil prices. Indonesia is the only member of the Organization of Petroleum Exporting Countries (OPEC) in the region.

He said that the government would still await developments in oil prices in the second semester before deciding on whether to change the budget deficit target.

The government has projected the 2004 budget deficit to reach 1.2 percent of gross domestic product, or around Rp 24.4 trillion.

There were hopes that oil prices might decline in the months ahead as OPEC is scheduled to convene in June, and may decide to raise output to help stabilize the price of the commodity.