Calm election 'restores faith of investors'

Calm election 'restores faith of investors'

JAKARTA (JP): Coordinating Minister for Economy, Finance and
Industry Ginandjar Kartasasmita said on Tuesday that Monday's
peaceful general election would provide a strong basis for the
revival of confidence in the country's battered economy.

"I've noticed (investors') reaction is positive towards the
election process," he told reporters after a meeting of senior
ministers.

He pointed out a surge in the rupiah and the share price rally
on local markets reflected an improvement of investors'
confidence in the future of the country's economy.

Indonesia's first truly free election since 1955 passed
peacefully on Monday with no reports of violence, defying earlier
rumors that the polls would be mired by chaos and disruptions.

Foreign observers have been impressed by the election process
despite a low turnout in several areas of the troubled Aceh
province.

Preliminary results showed the popular Indonesian Democratic
Party of Struggle (PDI Perjuangan) leading the ruling Golkar
Party.

Many foreign investors have delayed plans to invest in the
country to see how the election proceeds despite early signs of
improvement in the economy over the past couple of months.
Several parts of the country were hit by bloody riots in the run-
up to the elections.

Bank Indonesia Governor Sjahril Sabirin said increasing
confidence in the economy would provide the central bank to allow
a further decline in domestic interest rates without threatening
the rupiah.

He expected that the benchmark interest rate of the 1-month
central bank SBI promissory note to continue to decline at
today's auction (Wednesday).

"The interest rate of the 1-month SBI note can still go down
without hurting the rupiah because of increasing confidence," he
said.

The interest rate of the 1-month SBI note fell to 24.65
percent during last Wednesday's auction from a previous 26.12
percent.

Sjahril didn't predict the magnitude of the decline in the
interest rate.

He said, however, the decline in SBI rates as well as in
interest rates of bank time deposits would not immediately be
followed by a decline in lending rates.

"The spread between the lending rate and deposit rate will
remain wide during the adjustment period," he said, pointing out
that the interest rate spread would be higher than 4 percent,
which it is during normal times.

But Sjahril added that banks had started lending albeit
limitedly.

The domestic interest rate went as high as 70 percent in
August 1998 when the economic crisis heightened, sending many
companies into near bankruptcy.

Sjahril also said the revived confidence would further
strengthen the rupiah to between Rp 7,000 to Rp 7,500 to the U.S.
dollar, and projected a year-end level of Rp 6,000. The currency
closed at around Rp 7,600 on Tuesday.

State Minister of Investment Marzuki Usman said that the
resurrection of investors' confidence encouraged by the smooth
election process would easily boost direct foreign investment
back to the 1997 level.

"Foreign investments could easily climb back to the 1997
level," he said.

Due to security concerns, direct foreign investment approvals
dropped by 90 percent to US$560 million during the first quarter
of this year compared to $5.1 billion in the same period last
year.

Head of the Central Bureau of Statistics Sugito Suwito said
increased confidence in the economy would allow the country to
enjoy another positive growth in gross domestic product (GDP) in
the second quarter.

"There are signs of GDP to be positive in the second quarter
from first quarter's level," he said.

Indonesia registered a 1.34 percent GDP growth in the first
quarter this year compared to the fourth quarter of last year.
But a year-on-year comparison still showed a contraction of more
than 10 percent. The economy shrank by more than 13 percent in
1998.

Sugito said, however, the economy would no longer enjoy a
deflation this month as the price of rice had started to
increase.

The country posted a negative inflation rate for the third
month in a row since March. (rei)