Indonesia cuts growth rate

Communal violence in ceratin parts of Indonesia has cast a shadow over its path to economic recovery

In this story: IMF approves revision Political turmoil RELATED STORIES, SITES

By Staff and wire reports

JAKARTA, Indonesia -- Continuing political and economic turbulence in Indonesia has prompted the government to cut its economic growth forecast this year, as well as revise other key budget indicators.

Among the revisions, the gross domestic product (GDP) growth forecast for 2001 was cut to 3.25 to 3.75 percent from five percent, and inflation raised to 9.0 to 9.5 percent from 7.2 percent.

Average interest rates were also increased to 15 percent from 11.5 percent.

The average rupiah exchange rate to the U.S. dollar was also revised to 9,600 from an earlier forecast of 7,800.

Finance Ministry officials said on Sunday the forecasts were revised in the wake of a plunging rupiah, lower revenues and higher interest rates, which have strained the country's budget.

The preliminary changes will be submitted to parliament and also to a meeting of international donors under the Consultative Group for Indonesia (CGI) on Monday.

The donors will review Indonesia's progress on economic reform ahead of a CGI summit scheduled for later this year.

However, the government has held steady on the forecast budget deficit of 3.7 percent of GDP, despite widespread warnings by top ministers and analysts of a blow-out.

There were no changes to the forecast oil price or production.

Indonesia has been hard hit by a plunging rupiah, driven to its lowest since September 1998, by concerns over political instability and the government's failure to stem ethnic violence that has killed thousands.

The rupiah was trading close to 12,000 to the dollar in late local trade on Friday, while stocks were at 30-month lows.

But an analyst said that the revision of economic indicators would not create much impact on Indonesia's economy.

"It's just a change of economic fundamentals based on new information the government has gathered. And so that is not expected to create much impact," Guonan Ma, Chief economist for Merrill Lynch Asia told CNN.

IMF approves revision

Indonesia said on Monday the International Monetary Fund (IMF) had agreed to the government's revisions of its 2001 budget.

But officials said IMF approval of the changes did not necessarily mean it was ready to sign a new pact of reforms.

"The IMF has agreed to the changes in the budget assumptions," chief economics minister Rizal Ramli said.

A Fund team has been in Jakarta for more than a week, locked in talks with Jakarta over stalled reforms that have delayed a fresh $400-million IMF loan since last December.

Jakarta hopes the IMF visit will pave the way for disbursement of the money and a new letter of intent, crucial to the country's effort of winning over its major donors and potential investors.

Political turmoil

Earlier, the Asian Development Bank cited in its 2001 economic growth forecast that a brittle peace and order situation in the country and continuing political instability has prevented the country from recovering from an economic crisis.

At present, Indonesia is trying to cope with the possible impeachment of its embattled leader Abdurrahman Wahid, ethnic violence in several parts of the country, and massive corruption in the government.

The report said Indonesia is forecast to slow slightly to 4.2 percent in 2001 before improving to 4.5 percent next year.

It also pointed out that weakness in the banking sector, and the debt overhang in both the private and public sectors limit a faster pace of recovery.

Reuters contributed to this report.

ADB sees dip in growth for Asia
April 19, 2001
Ramli: Rupiah will gain if tension eases
April 2, 2001
Plummeting rupiah adds to Indonesia's woes
March 13, 2001
IMF positive on Indonesia review
April 11, 2001

Indonesia Government
Asian Development Bank (ADB) - Fighting Poverty in Asia and the Pacific - ADB.org
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