Economy to remain sluggish in first half of this year: BI

JAKARTA (JP): Bank Indonesia (BI) director Miranda Goeltom predicted on Wednesday that the economy would remain gloomy in the first half of this year but would begin to pick up after the general election scheduled for June 7.

She said the economic recovery would depend not only on an improved monetary policy but also on other factors, particularly a successful bank recapitalization program and general election.

"The economy will remain gloomy until June, but there's hope it will start to brighten up after June," she told reporters on the sidelines of a seminar on the country's economic prospects.

She forecast the economy would contract by up to 2 percent this year.

"But this will depend on whether or not the general election is successful," she added.

Indonesia is to hold a general election in June and a presidential election in November, which, following the fall of former dictator Soeharto last May, are expected to be the country's first free and open elections in 40 years.

Worries over whether or not the country can hold a peaceful election have intensified after the recent wave of riots and unrest in various parts of the country.

Moreover, analysts are concerned about the risk of further social unrest because the full impact of last year's 13.68 percent economic contraction is expected to be felt this year.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita also asserted at an international conference at Davos, Switzerland, last week that Indonesia's economic recovery would depend on a successful general election and consistency in implementing economic reform programs.

Doubts over the country's commitment to reform programs reemerged following the House of Representatives' stiff opposition to the costly bank recapitalization program.

The government's decision to quietly include the privately run Lippo Bank and Bank Sembada Artanugroho, along with 10 regional banks, in the first group of banks to receive government recapitalization funding raised strong criticism from the public and the House because of a lack of transparency in the process and the large sum of funding provided to Lippo.

Several House members demanded that the government revoke the Jan. 18 decree stipulating the first batch of banks to be recapitalized. Minister of Finance Bambang Subianto is scheduled on Thursday to brief the House on the bank recapitalization program.

"The recapitalization program is a must. Delaying the program will only make it costlier," Miranda said.

The funds required for the bank recapitalization program are estimated at as much as a third of the gross domestic product, or between US$35 billion and $40 billion. The government will finance 80 percent of the recapitalization program by issuing bonds.

Asked about the prospect of lower interest rates, Miranda said that it would depend on the exchange rate of the rupiah against the U.S. dollar.

"The central bank has to make sure that the interest rate level entices people to hold the rupiah," she said.

She added, however, that it was not the intention of the monetary authority to adopt a high interest rate policy.

The authority reversed the interest rate's downward trend last month following strong pressure on the rupiah. In a weekly auction on Wednesday, the one-month Bank Indonesia SBI promissory note benchmark interest rate rose to 36.97 percent from 36.53 percent the previous week.

This is the fourth consecutive interest rate rise. The SBI interest rate peaked at 70 percent in August. (rei)