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.