Government predicts positive growth in 1999/2000
Government predicts positive growth in 1999/2000
JAKARTA (JP): Senior government officials and the
International Monetary Fund are unanimous in predicting
Indonesia's battered economy will recover earlier than previously
estimated following recent positive developments in the country's
macroeconomic condition.
Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said on Thursday the government was
revising upward its economic growth forecast for the 1999/2000
fiscal year. The new forecast calls for between zero percent and
2 percent growth, revising the earlier estimate of between a
contraction of 1 percent and 1 percent growth.
He also predicted inflation would be around 10 percent, lower
than the earlier predicted 17 percent.
"But we can achieve these results only if we have a nonviolent
and credible general election," he said on the sidelines of a
seminar.
The June 7 general election will be the country's first free
and fair elections after more than 30 years under the
authoritarian rule of former president Soeharto.
Ginandjar said predictions of an earlier than expected
economic recovery were not being made only by the government, but
were also being voiced by the IMF.
IMF Asia Pacific director Hubert Neiss agreed positive
economic growth this fiscal year was possible, but he declined to
give an exact figure. He said the new economic assumptions would
be detailed in the letter of intent from the government to the
IMF which is expected to be finalized on Monday.
Neiss arrived in Jakarta earlier this week to review the
country's economic reform programs being financed by a
multibillion dollar overseas funding package arranged by the IMF.
The results of the review will be given to the fund's board of
directors, who will convene at the end of May to decide on the
next disbursement of the IMF's loan commitment to Indonesia.
Neiss said the next disbursement would be around US$500
million. He added that Japan also would provide a similar amount
of aid through the Miyazawa Plan.
Neiss also was optimistic inflation would drop. "There is now
the possibility that by the end of the fiscal year inflation will
be below two digits. That's a good target; that's a realistic
target," Neiss said after a breakfast meeting on Thursday with
opposition leader Megawati Soekarnoputri of the Indonesian
Democratic Party of Struggle (PDI Perjuangan).
Over the past several days, Indonesia has announced several
positive macroeconomic developments. The economy grew by 1.34
percent in the first quarter of 1999 from the fourth quarter of
last year, although on a year-to-year basis the economy still
contracted by more than 10 percent.
Inflation was minus 0.68 percent in April, following .18
percent deflation in March. The benchmark interest rate on the
central bank's one-month SBI promissory note declined to 31.47
percent on Wednesday from 33.21 percent the previous week.
Ginandjar is optimistic the interest rate on the SBI will
decline to below 30 percent within two weeks due to diminishing
inflationary pressure.
Bank Indonesia director Subarjo Joyosumarto also said on
Wednesday the interest rate on the SBI could drop to between 25
percent and 30 percent by the end of this month.
"With the declining interest rate we expect domestic banks
will no longer suffer negative (interest rate) spread," Subarjo
said on the sidelines of a seminar.
The problem of negative spread emerged because banks' time
deposit interest rates were higher than their lending rates.
The government plans to recapitalize the country's major
commercial banks to lift their capital adequacy ratios to a
minimum of 4 percent.
However, high interest rates pose a danger to the
recapitalization program because negative spread would continue
to erode the banks' capital.
The cost of the bank recapitalization program is expected to
rise to Rp 500 trillion from the earlier estimated Rp 300
trillion due to the deteriorating capital of the banks in the
program.
Subarjo stressed the central bank would only allow a gradual
decrease in interest rates, saying such a slow decline would not
affect the exchange rate of the rupiah if inflation remained
under control.
The rupiah was at Rp 8,075 against the U.S. dollar on
Thursday. The local currency has stabilized at around Rp 8,500
against the dollar over the past few weeks despite declining
interest rates. The rupiah was at Rp 9,500 in March.
The local stock market also has rallied in the past couple of
weeks on the back of an influx of foreign funds as investor
confidence in crisis-hit Asian countries begins to rise.
Neiss warned, however, that the renewed confidence would only
be sustainable if the country remained committed to the much-
needed economic reform programs.
Neiss has held marathon meetings with senior economic
ministers over the past few days in an effort to hammer out an
agreement on how to recover state banks' bad assets owed by well-
connected businessmen.
There has been concern early signs of economic recovery would
tempt some officials to delay the painful economic reforms,
particularly the effort to recover the huge debts owed to state
banks. (rei)