Jakarta - A Bank Indonesia official dismissed fear of overheating saying the country's economic growth is still below potential output. Perry Warjiyo, the central bank's executive for economic and monetary policy research, said the country's economic growth is fairly high but not yet up to the point of overheating. There have been fears of Indonesian economic overheating expressed by market analysts on strong domestic demand and investment amid shrinking export. "The country's economic growth is still below the potential output," Perry said here on Tuesday. The country's economic growth at present is around 6.4 percent based on record in second quarter of this year as against potential output of 6.7 percent, he said. He said the country's economy is forecast to grow 6.4 percent this year , and 6.6 percent in 2013, also still below the potential output. Strong domestic demand notably consumption and investment by the private sector could offset the decline in exports amid the global economic malaise, he said. Overheating is a threat when demand grows fast and higher than the country's national production capacity, he explained. Domestically the condition is reflected in high pressure of fundamental inflation, while externally , there is large current account deficit, he said. There are also a number of other indicators of overheating threat including economic growth being higher than the level of potential output, high growth of credits , high asset prices (bubble) and big fiscal deficit. The pressure of fundamental inflation in the country as reflected in core inflation has remained low and under control at 4.16 percent in August 2012. Consumer price index is also expected to remain under control -- 4.6 percent and 4.8 percent toward the end of 2012 and 2013, or within the target of 3.5 percent - 5.5 percent , Perry said. In addition, fiscal deficit in 2012 is expected to remain under control at around 2.2 percent in line with the revised state budget. Meanwhile,there has been no signs of bubble so far in the asset price increase as the prices of share and state bonds has rebounded after a fall early this year following global sentiments. The credit growth of 25.2 percent in July 2012 was still within a reasonable level to back up the country's economic development, Perry said. Altogether, optimum credit growth is estimated at around 22 percent to 24 percent, but the growth rate is higher for working capital and investment credits, he said. "Attention is focused more on credit growth in the automotive, property and credit card sectors," he said, adding the credit growth in those sectors is too high. Therefore, the central bank has issued a new policy what is called loan to value (LTV) policy, he added. Perry also described as natural the swell in the country's current account deficit that grew from US$3.2 billion (1.5 percent of the GDP) in the first quarter to US$6.9 billion (3.1 percent of the GDP) in the second quarter of this year. "In a developing economy such as Indonesia it is natural, especially as imports are dominated by industrial basic materials and capital goods that would expand the capacity of the economy," he said.(*)


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