Habibie believes economy starting on road to recovery

JAKARTA (JP): President B.J. Habibie said on Thursday Indonesia's recession-hit economy was rising from its nadir and heading toward recovery.

He said with the stabilization of the domestic political situation, the pace of economic recovery would accelerate.

"After about a year, economic recovery efforts have shown indications that Indonesia's crisis-hit economy has recovered from its lowest point and started to pick up," Habibie said in a speech at the opening of the Indonesian Importers Association congress.

Habibie, who has been named Golkar's candidate for the presidential election in November, faces a serious challenge in the election from popular opposition leader Megawati Soekarnoputri.

Habibie pointed to improving economic indicators, as reflected in positive economic growth in the first quarter of the current fiscal year, deflation over the past three months and a stronger rupiah as signs of economic recovery.

"It is estimated Indonesia's economic growth this year will be between zero and 2 percent," he said.

Habibie also said this year's inflation target of around 10 percent was attainable.

Economic ministers earlier projected inflation for the year would be between 10 percent and 13 percent.

Habibie said with inflation under control and the strengthening of the rupiah against the U.S. dollar, domestic interest rates could drop to below 20 percent by the end of the year.

Bank Indonesia has said the benchmark interest rate on its one-month SBI promissory note could range between 17 percent and 20 percent by the end of the year.

Indonesia's economy was badly hit by the currency meltdown which began in August 1997. The economy contracted 13.64 percent in 1998, causing millions of people to lose their jobs. Inflation last year jumped to 77.63 percent, eroding people's purchasing power. Interest rates skyrocketed to more than 70 percent in August last year and the rupiah plunged to a low of around Rp 17,000 against the dollar, causing severe problems for banks and the corporate sector.

The economic crisis helped force Soeharto to hand over the leadership of the country to his handpicked successor, Habibie.

Habibie attributed the improved economic conditions to his administration's economic and political policies.

He said, as an example, the June 7 general election, which was hailed by foreign observers as fair and honest, had heartened financial markets.

The rupiah and local stocks have rallied following the landmark elections, which were held without the widely feared unrest.

The rupiah, which was around Rp 8,500 before the polls, has risen past Rp 7,000 against the dollar. The Jakarta Stock Exchange composite index is now testing its peak level recorded in July 1997.

In the foreign-exchange market, the rupiah, boosted by the country's orderly elections, held firm at 6,765 on Thusday to the dollar in late trading, its closing level on Wednesday, despite profit-taking in the stock market.

The Jakarta Stock Exchange composite index dropped to 682.11 from 700.66 on the previous day.

"The stable political condition should be maintained and improved so the economic recovery can accelerate," Habibie said.

Separately, Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said on Thursday the benchmark interest rate could fall below 20 percent next week on improving economic indicators.

He said before a meeting with Habibie that lower interest rates were crucial to economic recovery.

Bank Indonesia lowered its benchmark interest rate on Wednesday to 20.34 percent from 22.50 percent.

Ginandjar also said inflation for June could be negative or zero because some prices were still on the decline. (rei/prb)