Q4 economy grows on local consumption: BI

Q4 economy grows on local consumption: BI

Berni K. Moestafa, The Jakarta Post, Jakarta

Bank Indonesia said on Wednesday that it expected the
country's economy to grow by between 3.3 and 3.6 percent in the
fourth quarter of this year, because of a surge in domestic
consumption ahead of the year-end festive season.

It expected economic growth this year to reach up to 4
percent, which analysts said was too optimistic given dwindling
export performance.

"Economic growth in 2001 is estimated to reach between 3.5
percent to 4 percent," Bank Indonesia said in a report issued
after a meeting of the central bank's board of governors.

The central bank however warned of the subsequent inflationary
pressures, as prices have kept rising in line with economic
growth.

"The economy in the fourth quarter, up to Nov. 2001, has been
marked by a surge in various activities linked to the Ramadhan
month and year end activities," Bank Indonesia said.

The government is targeting the country's gross domestic
product (GDP) to grow by 3.5 percent this year.

In the third quarter, the economy recorded growth of 3.47
percent, compared to 3.32 percent in the same period last year.

Third quarter growth was also driven by high domestic
consumption, which had helped boost production levels in the
manufacturing sector.

The government said earlier it was hoping local industries
could take advantage of the bullish domestic market.

Indonesia's export sales have been declining steadily as a
result of the fallout from a slowing global economy.

But its strong domestic market enabled the economy to grow, as
other Southeast Asian countries recorded contractions.

Exports and consumer spending are the country's main economic
growth engines, which last year helped the economy grow by 4.8
percent.

With one engine down, it remains to be seen how long strong
consumer spending will persist and help keep the economy afloat.

Creeping inflationary pressures are likely to eat into
domestic consumption once the festive season comes to an end next
month.

"Prices during November have gone up, with inflation reaching
1.71 percent compared to 0.68 percent the month before," Bank
Indonesia said.

The central bank is in charge of keeping inflationary
pressures in check, which in the 11 months to November hit 10.76
percent, compared to the full-year target of 9-11 percent.

To this end, it is keeping its interest rates tight to reduce
the supply of money in circulation, thereby also relieving
pressure on the rupiah.

On Wednesday, the weighted average interest rate on one-month
Bank Indonesia SBI promissory notes was unchanged at the weekly
auction.

The one-month SBI notes stood at 17.61 percent, unchanged from
last week's auction.

Bank Indonesia predicted that demand for liquidity would
continue to rise throughout the rest of the year, on the back of
higher consumer and government spending.

"Without an adequate supply and distribution of goods, the
pressure on prices will increase," the central bank said.

It suggested that the government provide an adequate supply of
goods and ensure their distribution as a matter of priority in
order to lower inflationary pressures.

For its part, Bank Indonesia said it would focus on reducing
the supply of money in circulation, meaning that it planned to
keep interest rates high.