BI slashes growth forecast
as crisis worsens

The central bank has cut its forecast for Indonesia's economic growth this year, as the impacts of the global economic turmoil look likely to hit the country's investments and exports harder than earlier predicted.

Under the revision, the country's economic growth this year could be as low as 3 percent, Bank Indonesia senior deputy governor Miranda W. Goeltom said Friday.

"There has been a revision," she told reporters.

"BI forecasts *economic growth of* between 3 and 4 percent; whether it swings higher or lower depends on the implementation of the government's fiscal stimulus."

BI initially forecast the economy, the largest in Southeast Asia, to grow by between 4 and 5 percent, but with a "big downside risk".

Even the more optimistic figures were slower than the 6.1 percent growth recorded by the country last year, according to data from the Central Statistics Agency (BPS).

"I think the economic growth is not only affected by *slowing* exports, but also investment. Drying global liquidity slows down the flows of investment," Miranda said.

Indonesian exports have been hit hard since last October, just as the global economy began weakening.

Exports in January fell 36 percent from a year earlier as global demand dived, the BPS reported.

It was the steepest year-on-year decline since 1986.

BI has estimated exports may contract by between 25 and 28 percent this year, while the Indonesian Chambers of Commerce and Industry (Kadin) have predicted a bleaker figure of a 50 percent drop.

Kadin earlier predicted the economy might grow by 4 percent at best.

"Therefore, we expect the fiscal stimulus can maintain growth to remain positive," Miranda added.

"If you have a look around, you'll see we are the only ASEAN country still in the black."

Under the stimulus package, the government will disburse Rp 73.3 trillion (US$6.3 billion) to generate growth and mitigate the fallout from the global economic downturn.

As domestic demand slides, government spending and the fiscal stimulus are highly expected to help stimulate the economy.

But the stimulus, particularly the parts of it designated for infrastructure projects, may not pan out as scheduled due to certain issues, said State Minister for National Development Planning Paskah Suzetta.

For instance, some local-level projects included in the stimulus are not feasible for execution by the government, he said, but did not elaborate further.

Analysts have said the stimulus is indeed crucial to boost growth and that 4 percent growth was fairly realistic, but cast doubts on the government's focus in executing it ahead of the legislative and presidential elections.

"The economy may expand by about 4 percent this year, assuming that the *fiscal* stimulus runs effectively," said M. Fadhil Hasan, an economist at the Institute for the Development of Economics and Finance (Indef).

"But some ministries are not yet ready to implement the stimulus, and that has become a problem."

Indonesia needs to maintain positive growth to help rein in, if not reduce, poverty and unemployment rates.

Next week, Indonesia will join its peers at the G20 Summit in London to discuss restoring global trade and ensuring the flow of funds to emerging countries.

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