Jakarta – Indonesia's chief economics minister said on Thursday the haggard economy would be hard pressed to grow more than five percent next year, signalling more hardship ahead for millions of the country's poor.

"There is a lot of work that needs to be done in 2002. It is predicted that economic growth above five percent will be difficult to reach while ideally inflation will be below 10 percent," Dorodjatun Kuntjoro-Jakti told reporters. Inflation is currently around 13 percent year-on-year.

Some economists say growth needs to be at least double the 3.5 percent targeted in the 2001 state budget to generate employment. "In order to absorb new job seekers you need to grow at 7-8 percent," said Raden Pardede, an economist at state-owned Danareksa Securities.

But Pardede agreed growth of five percent at best was all Indonesia was likely to achieve next year because of its low domestic savings rate, currently at around 17-18 percent of GDP. Indonesia had domestic savings of around 28 percent of GDP before the economic crisis and consistently booked growth of around eight percent.

The country's soaring interest rates – currently at two year highs – are also hindering growth. The central bank has been steadily raising rates over the past year to defend the ailing rupiah. The Bank's weekly auction of its one-month certificates yielded a rate of 17.67 percent on Wednesday from 17.61 percent a week earlier.

Separately on Thursday, Finance Minister Boediono said the government was considering a stronger rupiah exchange rate of 8,000-9,000 per dollar for the 2002 budget. A rate of 9,600 is assumed for the 2001 budget.

Asked about the possible rate for 2002, Boediono told reporters: "Between 8,000-9,000. We haven't picked the rate yet." The government is expected to submit key economic assumptions for the 2002 budget to parliament in September.

The rupiah has been way off its 2001 target, hitting a low of around 12,000 at the end of April. It has since recovered, buoyed by the election of Megawati Sukarnoputri last month. By 1000 GMT, the rupiah was quoted at 8,925/8,955 against the dollar.