Government amends GDP growth forecast to 2 percent
JAKARTA (JP): The government is revising its economic growth forecast for the 1999/2000 fiscal year to 2 percent from an earlier flat projection amid convincing signs of economic recovery, according to a senior government official at the Ministry of Finance.
The official, who declined to be named, said the more bullish estimate was based on the fact that many economic indicators were now looking good.
"The IMF has also said economic sectors that contracted last year have now posted positive growth," he told The Jakarta Post after a meeting with senior economic ministers and officials from the International Monetary Fund (IMF) on Friday.
The source also said that inflation for the fiscal year was projected to be between 8 percent and 10 percent, compared to earlier forecasts of less than 10 percent.
The government and the IMF started discussions on Friday on the country's next letter of intent to the Fund. The talks are to include Indonesia's revised macroeconomic forecasts.
The IMF's Asia Pacific director, Hubert Neiss, is expected to come to Jakarta this month to join the final rounds of the talks.
The signing of the new letter of intent will pave the way for the disbursement of further loans from the IMF, which has a commitment to providing US$12.3 billion to finance the country's economic reform programs.
Bank Indonesia deputy governor Subarjo Joyosumarto acknowledged on Friday that the government was revising its macroeconomic assumptions.
He declined to disclose the new assumptions, saying they were not yet final.
Indonesia's economy has continued to show convincing signs of recovery.
Gross domestic product grew by 1.82 percent in the second quarter of this year compared to the same period of 1998 as various economic sectors, including agriculture, mining, services, manufacturing and construction, started to grow.
The economy contracted by 13.68 percent last year.
Inflation in June was negative 0.34 percent, the fourth deflation month for four consecutive months. Inflation skyrocketed to more than 77 percent last year at the height of the economic crisis.
The central bank benchmark interest rate has also dropped to 17.15 percent, compared to last year's 70 percent.
The rupiah has been hovering at around Rp 6,700 to the dollar, compared to more than Rp 14,000 last year.
The government source said the benchmark interest rate was expected to further decline to around 12 percent to encourage banks to resume and thus stimulate economic growth.
Meanwhile, another Bank Indonesia deputy governor, Miranda S. Goeltom, said the benchmark interest rate should fall to around 15 percent later this month.
She expected that banks could start lending in August, pointing out that it would no longer be profitable for banks to keep their third-party funds in central bank promissory notes due to the declining interest rate.
Indonesia's banking sector has been badly hit by the economic crisis. The high time-deposit rates and piles of non-performing loans has made banks suffer negative interest rate spreads. Banks had to invest their third-party funds in central bank paper notes offering high rates as no businesses could afford the high cost of borrowing.(rei)