Govt says economy set to bottom out

Govt says economy set to bottom out

JAKARTA (JP): Indonesia's crisis-hit economy should bottom out
in the first semester of the next fiscal year beginning in April
after shrinking by an estimated 16 percent in the current
1998/1999 fiscal year, the government said Tuesday.

The government also said in the supplementary memorandum of
economic and financial policies, a new letter of intent to the
International Monetary Fund (IMF), that inflation, running at an
estimated 66 percent in the current fiscal year, should moderate
to within a range of 15 to 20 percent in 1999/2000.

"Our central projection is for the real gross domestic product
in 1999/2000 to be virtually unchanged, based on the expectation
that the economy will bottom out during the first half of the
fiscal year, and that a modest recovery will begin thereafter,"
the letter said.

But it warned that a number of domestic and external risks
applied to the outlook, and the macroeconomic framework would be
reviewed regularly to ensure that policies remained consistent.

The government said it remained committed to pursuing a tight
monetary policy to stabilize prices and reduce the volatility of
the rupiah. It targeted a maximum base money expansion of 14
percent in fiscal 1999/2000.

In the fiscal sector, the government would continue with its
expansionary budget in order to stimulate growth.

The budget deficit for 1999/2000 is projected to reach 6
percent of the GDP, assuming that the rupiah averages at Rp 7,500
per U.S. dollar and the government collects $1.5 billion from its
privatization program.

"The budgetary framework for 1999/2000 is critically dependent
on the timely availability of external financing," the government
says, adding that it hoped to get additional official external
support of about $5 billion to plug the budget deficit.

The government also said that, in an unexpected development,
further privatization of international call operator PT Indosat
had been delayed for one to two months for a variety of technical
reasons.

So far this fiscal year, the government has concluded only two
transactions totaling close to $200 million -- far behind the
targeted $1 billion -- through the sale of shares in cement maker
PT Semen Gresik and food giant PT Indofood Sukses Makmur.

"The privatization program has fallen behind schedule this
year, principally because market conditions remain unfavorable,"
it said.

As the budget revenue situation had become "a source of
considerable concern," the government said it would likely raise
excise taxes on selected commodities, reduce tax exemptions and
make more goods subject to value added tax.

Nevertheless, the government said the 1999/2000 budget would
not be affected by the fiscal decentralization legislation
currently being deliberated by the government and the House of
Representatives.

This legislation adopts careful sequencing of decentralization
reforms, with administrative and expenditure decentralization
preceding revenue assignments.

On international trade, the government believed Indonesia's
balance of payments in 1999/2000 should improve steadily, with
export growth contributing to a "somewhat larger" external trade
surplus.

With that surplus, coupled with incoming official funds, the
country's gross external reserves are expected to increase to a
"more comfortable level" of around US$29 billion -- compared to
the $24 billion level now.

To restore foreign investor confidence in the country, the
government said, it would continue with its bank restructuring
measures, help solve private external debt hangover and improve
legal structure.

The government decided on Saturday to close down 38 domestic
private banks, nationalize seven, recapitalize nine others and
let 73 relatively healthy banks continue operations.

It promised to complete the recapitalization process for the
nine banks by June 30.

"Thereafter, there will be regular six-month reviews of all
banks to ensure their continued compliance with the highest
prudential standards, with audits by international accounting
firms for the foreign exchange banks," it said.

To help solve the debt overhang, the government expected an
agreement with external private creditors to be reached on a
second interbank exchange offer to cover debts falling due during
the 1999-2000 period.

The government would also continue to encourage creditors and
debtors to settle their debt overhang through the Jakarta
Initiative or the Indonesian Debt Restructuring Agency.

It promised to amend the bankruptcy law and appoint by March
25 ad hoc judges to the commercial court to improve the
credibility of that court.

The government will also submit legislation for the
registration of security interests that will give certainty
concerning the priority rights of creditors.

It will also make recommendations in consultation with the
private sector to strengthen securities regulations, stock
exchange listing requirements as well as company and accounting
laws. (rei/rid)