GDP growth in 1999/2000 predicted at 2-4%

JAKARTA (JP): State Minister and Chairman of the National Development Planning Board (Bappenas) Boediono forecast on Tuesday that the economy would grow by between 2 percent and 4 percent in the current fiscal year ending in March 2000.

He also projected that growth would expand to a range of 4 percent to 6 percent in the next fiscal year.

"With growth prospects of 2 to 4 percent this fiscal year and 4 to 6 percent next year, the next two years could witness the recovery of over half of our income per capita, measured in U.S dollars, lost during the crisis," Boediono told a capital market seminar.

He believed that the economy would see a gross domestic product (GDP) growth rate of between 6 percent and 7 percent in the 2003/2004 fiscal year.

"In per capita dollar terms, Indonesian GDP will be back to pre-crisis levels but on a more sustainable growth path with lower inflation, a stable exchange rate, lower interest rates and current account deficit, and a sustainable government budget," Boediono said.

Boediono's growth forecast for the current fiscal year is rosier than the 1.5 percent to 2.5 percent predicted earlier in July. The forecast appears optimistic in view of a major bank scandal and increasing political uncertainty.

But Boediono said: "In terms of our resource base, human and physical capital, our capacity to rebound is great. What we need is a good political climate, good economic policies and, yes, a little luck."

Indonesia has been badly hit by the economic crisis that started in the middle of 1997. The economy contracted by 13.68 percent last year, inflation skyrocketed to more than 77 percent, the central bank's benchmark interest rate soared to more than 70 percent and the rupiah plunged to as low as Rp 17,000 to the U.S. dollar, compared to Rp 2,500 before the crisis.

But the rupiah has managed to stabilize at between 7,000 to 8,000 over the past few months, inflation has continued to be negative for five months in a row, the benchmark interest plunged to around 13 percent and there was positive GDP growth in the second quarter.

Boediono emphasized the importance of continuing the economic reform programs to achieve sustainable economic recovery.

"We believe that the key to getting the economy growing lies in bank restructuring, corporate restructuring, reducing the impediments to doing business, and in legal judicial reform," he said.

Boediono expected the rupiah to trade at 6,000 to 8,000 against the dollar next year, depending on the strength of private capital inflows, but gave no timeframe.

Inflation is expected to stabilize at 3 percent to 4 percent and the nominal deposit interest rate to fall to the 6 percent to 10 percent range, he said.

The government plans to raise revenue by several percentage points of the GDP and cut subsidies, but will still face budget deficits over the next few years, he said.

"Five years from now, we believe that we can successfully eliminate the need for net foreign inflows and any need to have recourse to financing," Boediono said.

"Our budget will reach an overall balance," he added.

"This budget scenario is in line with our objective to achieve fiscal sustainability in the medium term," Boediono said, adding that Indonesia should experience current account surpluses for the next few years before returning to a small deficit.

Meanwhile, the World Bank vice president for East Asia and the Pacific Jean-Michel Severino said in a speech at the same meeting that it was important to continue the bank restructuring program.

"But let there be no mistake, the recapitalization of banks is not the end of the process -- it is just the beginning," he said.

Severino added that while it was necessary for the government to nationalize several major banks to prevent the collapse of the banking system, "This is neither desirable nor healthy for the long-run development of a sound and efficient banking system.

"Restructuring the state banks and then privatizing them must be a central focus of attention in the future," he added.

Severino also warned that it was crucial for the Indonesian Bank Restructuring Agency (IBRA) to restore its image following the Bank Bali scandal.

"IBRA also has an important fiduciary role which must be taken seriously," he said, adding that given the agency's importance, it would itself inevitably be accused of negligence or wrongdoing. (rei)