First quarter GDP estimated at 3% to 3.5%

The Jakarta Post, Jakarta

Bank Indonesia said the economy grew by an estimated 3 percent to 3.5 percent in the first quarter of this year compared to the same period last year on the back of improvements in investment, exports and government spending.

But household consumption, which had been expected to be the main driver of growth this year, seems to be slowing down, the central bank said.

"While consumption showed indications of slowing, investment activity, exports and government spending showed improvements over the previous quarter," the bank said Thursday in a statement.

The government has targeted economic growth of 4 percent this year compared to 3.32 percent last year.

But the Asian Development Bank said earlier that gross domestic product (GDP) growth this year would likely reach only 3 percent.

Analysts have said that GDP growth would be higher in the third and fourth quarter as an expected recovery in the U.S. economy would further increase exports.

Exports in February rose by 4.36 percent to US$4.18 billion from $4 billion in January. This is the best export performance since October last year.

The central bank also said that inflation remained a worry, signaling that interest rates would likely remain high for the time being.

The central bank has been trying to guide down its benchmark interest rate from nearly 18 percent late last year to 16.70 percent now. But this level is still considered high.

Bank Indonesia said that the serious floods in the first quarter, which disrupted food distribution, and the rise in fuel prices had been the main factors resulting in strong inflationary pressures.

Year-on-year inflation in March was 14.08 percent. The government has targeted an inflation level of 9 percent this year.

With oil prices increasing due to the current Middle East crisis, the government is likely to increase fuel prices again early next month.

Elsewhere, Bank Indonesia said a relatively peaceful situation and some progress with the economic reform program, including the recent divestment of the government's controlling stake in Bank Central Asia, had improved market sentiment and reduced perceived business risks.

Bank Indonesia also said that a positive outcome from two-day debt rescheduling talks between the government and the Paris Club of creditor nations on Thursday and Friday would contribute to the optimistic sentiment.

The government is seeking a rescheduling facility for some $5.5 billion in sovereign debts maturing this year and next to help limit the state budget deficit to a safer level of 2.5 percent of GDP.

"These various indicators have in turn strengthened the rupiah gradually and led to a declines in the central bank SBI rates," the bank said.

The rupiah has strengthened to a seven-month high lately on the back of the recent positive news. The local unit closed at Rp 9,530 per dollar late Thursday from 9,590 previously.