RI expects economy to pick up in Mid-2004

RI expects economy to pick up in Mid-2004

Jenny Paris, Dow Jones, Phuket, Thailand

Indonesia's economy should begin to post strong growth next year after uncertainty surrounding the July presidential election subsides, Finance Minister Boediono said on Friday.

All aspects of the economy will be "more manageable," Boediono told Dow Jones Newswires in an interview.

"Next year, if we're lucky, the investment climate will improve during the third or fourth quarter," he said at the end of two days of talks among finance ministers of the Asia Pacific Economic Cooperation forum.

The finance minister reaffirmed that he expected gross domestic product growth to accelerate to 4.5 percent next year from an anticipated 4 percent in 2003.

Presidential elections in Indonesia are scheduled for July 5, at a time when President Megawati Sukarnoputri's leadership faces the challenge of surviving without International Monetary Fund (IMF) support amid heightened terrorist risks.

Moody's Investors Service Thursday warned that "2004 will be a risky year for Indonesia with the elections coming up and the threat of terrorism."

Last month, Indonesia outlined a raft of financial policies for 2004 in a bid to assure investors it will continue to manage the economy prudently next year without an IMF program. These include measures to balance the budget by 2005 and to continue reform of the financial system by selling stakes in state-owned banks.

Some observers fear Indonesia's government will face pressure to increase spending next year to boost employment ahead of the elections.

But Boediono said he didn't expect election spending to blow out the budget deficit, which he expects to be capped at 1.2 percent of GDP.

"I'm quite confident once we come to an agreement with the parliament (on the budget), we'll be able to cap the budget deficit at 1.2 percent of GDP, he said. "In the proposed budget we have incorporated all necessary spending, including the cost of elections, everything is already there."

The country needs to raise about Rp 90 trillion next year to repay domestic and foreign debt, and cover its budget deficit. As well as issuing domestic bonds, the government plans a $400 million global bond early next yea. It also plans to sell state- owned assets. And donors led by the World Bank are expected to lend around Rp 20 trillion.

Boediono reiterated government plans to issue Rp 28 trillion, or about $3 billion, of domestic bonds next year, but noted that net debt issuance will be around $900 million after paying maturing bonds.

He said the country was still set to launch the global bond next year but that the timing will depend on market conditions.

"If necessary, we can also raise the funds domestically," he said.

As for the debate over a U.S.-led campaign for exchange rate liberalization by China and some other Asian nations - a topic that dominated the APEC talks, Boediono said he favored a slow approach.

"As far as I know there has been no direct commitment to move toward exchange rate flexibility. Things need time to adjust, everybody recognizes that," he said.

APEC members Friday rebuffed U.S. Treasury Secretary John Snow's push to have China unhitch the yuan from the dollar, agreeing only on a vague call for "appropriate" currency policies and merely noting Snow's campaign for "flexible" currency systems.

Boediono voiced support for Beijing's determination to liberalize its exchange rate regime at its own pace.

"Some of us are practicing fixed-exchange rates. Every country has its right to introduce the appropriate exchange rate system for its economy," he said.