RI FACING BETTER ECONOMIC PROSPECT THIS YEAR

By Andi Abdussalam


Jakarta, July 4 (ANTARA) - Amid signs of economic recovery, particularly in emerging markets like China, India and South Korea, Indonesia is also facing better economic prospects this year.

        While the global financial crisis caused the world economy to undergo a minus 1.3 percent growth, the Indonesian government now predicts the country's economic growth this year may reach 4.3 percent.

        "Economic growth in the first semester of 2009 may reach 4.1 percent, and in the second semester 4.6 percent, bringing the total to 4.3 percent," Finance Minister Sri Mulyani Indrawati said.

        An optimistic prediction is also made by Deputy Governor of Bank Indonesia (BI) Hartadi A Sarwono. Even though the central bank has predicted Indonesia's economic growth this year at between 3.5 and 4.0 percent, Sarwono said it could exceed four percent.

        "It is not impossible for it to happen. It depends on the speed of global recovery. It is possible for the economy to grow above four percent. However, it is still too early for me to say that the US and the European economies will soon improve," he said.

        However Bank Indonesia would not yet revise its forecast. The central bank still predicts the economy will grow between 3.5 and 4.0 percent, according to Sarwono.

        The BI deputy governor predicted that BI inclined to the 4.0 percent growth forecast because of signs of improving regional economic conditions. "Signs of improvement are already seen in the region. China, India and South Korea are already improving. Even the regions are now supporting growth," he said.

        According to BI Acting Governor Miranda S Goeltom, global economic growth in the second semester of 2009 showed the beginning of a recovery process. "In advanced countries, initial economic recovery is now taking place. In the emerging markets, economic recovery is showing steady strength such as in China, India and South Korea," Goeltom said.

        She said that expectations of world economic recovery had created positive sentiment among global money market players so that the situation had begun to boost capital to enter Indonesia. The present trend was having a positive impact on Indonesia's economic performance in the second semester of this year.

        In the meantime. the country's inflation rate is also expected to drop below five percent this year, or below the 5-7 percent range projected earlier by Bank Indonesia.

        "Inflation could fall not only to below 5-7 percent but even to less than five percent," Goeltom said.

        This is based on the Central Bureau of Statistics (BPS)'s announcement that in June the month-on-month inflation rate was 0.11 percent while the January-June calender-year inflation was 0.21 percent. The year-on-year inflation in June stood at 3.65 percent.

        "This is far lower than any inflation rate on historical record," the acting BI governor said. She said that the diminished inflationary pressures were expected to fuel domestic demand for goods and encourage businesses to expand as prices were under control.

        Goeltom said that the low inflation rate was also expected to help boost the extension of bank credits in the second semester of this year. But it seems that expansion of credits would still be hampered by high lending rates. Businesses need lower lending rates to help develop the business sector. In this case, BI has aggressively cut its rate so that banks would follow suit in lowering the rates of their credits interest.

        Virtually, banks already cut their lending rate several times from 16 percent to the current level of 13 percent. But a rate of that level is still considered high by businesses.

        Therefore, on Friday, BI once again cut its key rate by 25 basis points from 7.0 percent to 6.75 percent. The reference rate has been undergoing a cut of 2.75 percent (275 basis points) since December 2008.

        "The BI Rate cut is expected to facilitate accelerated extension of banking credits amid macro economic stability," Gultom said. She said that the BI key rate was lowered considering the relatively still strong economic growth and the weakening of the inflationary pressures.

        With further cuts in BI key rate, banks credit provision is expected to expand which would in turn boost the real sector and exports. The present bank landing rates are still high so that the competitive edge of Indonesia's exports could not yet be increased.

        Due to the world economic crisis, Indonesia's exports have experienced unfavorable growth. Director of the Center for Information and Development Studies (Cides), Umar Juoro, said that even though the country's exports experienced a negative growth by 20 percent, the current account and trade balance remained positive as the negative growth of imports was bigger than that of exports.

        According to Miranda S Goltom, the strengthening of the economies of trade partner countries had improved Indonesia's export performance so that its current account transactions were now in a surplus of 2.2 billion US dollars.

        If the country's economic prospects are predicted to improve in the second half of this year with an estimated economic growth of over 4 percent, it will even be better next year, with an estimated growth of 6 percent.

        Indonesia's economic prospects will be better if the world economy recovers in 2010. "If the world economy recovers in 2010, Indonesia's economic growth could return to the six percent level," Umar Juoro said.

        He said that a six percent growth in Indonesia's economy would be able to boost exports and imports, which would also impact on domestic and foreign investment.

        "The economy would be developed further if the infrastructure development is boosted significantly and the stimuli policies could be implemented perfectly," he said. ***2*** (T.A014/A/HAJM/20:45/H-YH) (T.A014/A/A014/A/H-YH) 04-07-2009 21:04:47