|
The central bank sees Indonesia's economy picking up further
next year as both inflation and interest rates continue their downward
trend, but warned that problems in the banking sector could undermine
all the recent gains in macroeconomic stability.
Growth "will continue rising to at least 6 percent in 2007" with
inflation "having the prospect of coming in at between five and seven
percent," Bank Indonesia Senior Deputy Governor Miranda S. Goeltom said
Wednesday at a seminar.
BI's Board of Governors said in a statement later in the day that
Indonesia's economy may expand within a range of 5.7 percent to 6.3
percent in 2007 on increases in both private and public-sector
spending, exports and investment by the second half of the year.
Growth could reach the upper range if such downside risks as a mismatch
in supply and demand, lending problems in the banking sector and global
economic risks were addressed from the outset.
The government is expecting growth next year of 6.3 percent -- up from
this year's estimate of 5.8 percent -- and inflation of 6.5 percent --
down from 2006's estimate of 8 percent.
Indonesia's economy grew by 5.5 percent in the year to the end of
September on higher consumer spending and a continued strong export
performance. Inflation slowed to an on-year rate of 6.3 percent in
October from 17 percent earlier in the year, which helped improve
people's purchasing power.
Miranda said the economy would continue to pace up as inflation eased,
possible coming in at the lower range of BI's estimate at slightly
under 6 percent.
The current stability of the rupiah would help contain inflation, she
said, despite possible inflationary pressures in early 2007 as a result
of the government's plan to raise civil service salaries. Other
inflationary pressures could arise from higher global oil prices over
the course of the year.
The central bank would also continue to adjust its benchmark BI rate in
line with inflation, but would strive to maintain a balance so as to
support growth.
By the beginning of November, BI had cut its key rate by 2.5 percentage
points to 10.25 percent from 12.75 percent earlier in the year. This
should help push down lending rates, thus encouraging higher business
and consumer lending.
Yet therein lies the dilemma, Miranda said, with the banking sector
still facing non-performing-loan (NPL) problems, thus discouraging
lenders from increasing lending.
"It is therefore essential that the NPL problem is solved," she said.
"If it is addressed, then more loans can be disbursed, thus avoiding
excess liquidity in the banking sector."
BI might have to raise its key rate again, Miranda warned, to absorb
this excess liquidity through treasury bills and government bonds.
This could undermine the macroeconomic improvements that have been
achieved so far. If the banks were to invest their excess liquidity in
treasury bills and government bonds instead of loans, this will
contribute almost nothing to economic growth.
Miranda therefore urged banks to further improve efficiency and the
prudent management of loans.
The central bank noted that lending increasing by Rp 18.5 trillion
(US$2 billion) in September from Rp 10 trillion the previous month.
While this will be enough for the industry to achieve lending growth of
13 percent this year, it still falls far short of the previous target
of 18 percent. Lending growth is only expected to recover to between 15
and 18 percent next year.
|
