StanChart projects Indonesia to grow 3.8%

The Jakarta Post, Jakarta

The prospects of an improved political climate, stronger household consumption and world economic recovery will likely push the country's economy upward in 2002, Standard Chartered Bank predicts.

The bank projected Indonesia's growth at 3.8 percent this year, almost the same as government's growth estimate of between 3.5 to 4 percent.

However, it's higher than the projections of several international agencies, including the World Bank which predicted Indonesia's growth at 3.5 percent.

The International Monetary Fund (IMF) estimated growth at between 3 and 4 percent.

This year's growth would likely be driven primarily by strong household consumption as it was last year, the bank said in a release.

Last year, despite a heavy blow stemming from the sharp drop in the value of exports, and while many neighboring countries struggled to avoid recession, Indonesia still managed to post 3.5 percent growth on the back of domestic consumption, the government has said, quoting preliminary data.

The decline in exports was inevitable following the September attacks on the U.S., Indonesia's main export destination.

The bank also said that in spite of the increases in fuel prices and utility tariffs, Indonesia's inflation would be capped at 10 percent this year, provided the appreciation of the rupiah against the dollar.

The local currency is likely to strengthen to Rp 9,250 against the American greenback by the end of the year, thanks to the expected gradual willingness of the exporters to sell dollars, the revival of capital inflow and high rate of dollar-rupiah interest rate differentials.

"However, the rupiah would remain sensitive to political shocks," it warned.

The rupiah is currently hovering at a narrow range of Rp 10,350 to Rp 10,450 against the dollar.

As for the monetary policy, Bank Indonesia may only reduce the discount rate of its one-month promissory notes from 17.6 percent to 15 percent this year, given strict money supply targets imposed by the International Monetary Funds (IMF) and existing inflationary pressure, the bank said.