Economy continued on road to recovery in June

Economy continued on road to recovery in June

JAKARTA (JP): Indonesia's crisis-hit economy continued to show
convincing signs of recovery as inflation in June fell to minus
0.34 percent and gross domestic product (GDP) grew by 1.82
percent in the second quarter of this year compared to the same
period last year.

Head of the Central Bureau of Statistics (BPS) Sugito Suwito
said on Thursday June's negative inflation rate, the fourth
deflation for four months in a row, was largely attributed to
declining prices in basic food commodities and clothing.

"Cumulative inflation in the first six months of 1999 was 2.73
percent, but the rate for the first quarter of 1999/2000 fiscal
year, from April to June, was minus 1.30 percent," Sugito said at
a media conference.

Inflation was minus 0.18 percent in March, minus 0.68 percent
in April and minus 0.28 percent in May.

The government projected inflation for the whole calendar year
to be 10 percent to 13 percent and for the fiscal year ending in
March at less than 10 percent.

The economy suffered hyperinflation of 77.63 percent last year
when the economic crisis heightened.

Sugito said food prices dropped 1.15 percent in June from May,
processed food, beverages, cigarettes, and tobacco fell 0.02
percent and clothing fell 1.24 percent.

He said the drop in the prices of sugar, vegetables and spices
contributed significantly to lower inflation.

He added, however, the price for rice increased during the
month under review.

He said prices in other subsectors including housing, health,
education, transportation and communications also increased last
month.

BPS reported GDP grew by 0.47 percent in the second quarter of
this year compared to the first quarter due mainly to recovery in
the service sectors of trade, hotel and restaurant.

"Economic growth in the second quarter of 1999 was 1.82
percent if it's compared to the same period last year," Sugito
said.

He said BPS therefore revised upward its GDP projection for
the whole year to 0.13 percent, compared to an earlier projection
of minus 1.5 percent, assuming the country's social and political
stability could be maintained.

The government projected GDP growth of up to 2 percent for the
1999/2000 fiscal year ending in March. The economy contracted
10.34 percent in 1998/1999.

But signs of economic improvement emerged late in March when
BPS announced a 1.34 percent in first quarter GDP growth, and the
first negative inflation rate since the crisis started in August
1997.

Sugito said in addition to improving political conditions
following the recent peaceful June 7 general election, the
stronger exchange rate of the rupiah against the U.S. dollar and
falling interest rates contributed to the economic recovery in
the second quarter.

The rupiah has sharply appreciated against the dollar,
particularly after the election, and closed at Rp 6,840 on
Thursday, compared to Rp 6,692 on Wednesday. The currency
hovered at about Rp 8,100 to one dollar before the election.

The stronger rupiah and lower inflation has allowed the
central bank to steadily cut its benchmark interest rate to a
current level of 18.84 percent, compared to 29.82 percent in May.

It added that water, transportation and communications,
electricity, mining, gas, and retail sectors enjoyed positive
growth.

But the agricultural sector, animal husbandry, forestry and
fisheries declined by 3.28 percent, and the construction sector
contracted by 4.86 percent, BPS said.

BPS reported exports in May increased by 5.33 percent to
US$4.06 billion from $3.85 billion in April.

Cumulative exports from January to May totaled $18.07 billion
or 10.03 percent lower than those in the same period in 1998.

BPS said imports in May dropped by 6.06 percent to $1.99
billion from $2.12 billion in April. Cumulative imports in the
January to May period fell by 13.26 percent to $9.67 billion from
$11.15 billion in the same period last year.(rei)