Jakarta – Indonesia's economy probably expanded in the fourth quarter as Muslim holy days and other festivals spurred spending on food and gifts, analysts say.

Rising prices for palm oil, natural gas and other exports may have also helped gross domestic product rise an estimated 4 percent from a year earlier after a 3.9 percent gain in the third quarter, according to the median forecast of eight economists surveyed by Bloomberg News. The report is to be released on Monday.

Consumer spending drives three-quarters of economic activity in Indonesia, where eight of the ten biggest nonbank companies on the Jakarta stock exchange sell motor bikes, cars, cigarettes, noodles, detergents and cement. With foreign-investment approvals shrinking a third and money from tourism dropping almost two- fifths last year, Jakarta will be hard-pressed to ensure that consumer confidence does not flag, analysts said.

"If private consumption stalls, everything will fall apart because of the lack of external demand and a business environment that's deterring investments," said Charlie Lay, an economist at Forecast Singapore Pte., who expects the economy to expand 3.7 percent this year after an estimated 3.5 percent last year. "The government has no money to spend. Everything is a little bleak."

The central bank said last month that private spending would help gross domestic product expand 4.3 to 4.8 percent in the fourth quarter.

Indonesia is the only Southeast Asian country that has not yet recovered fully from the 1997-1999 Asian financial crisis. The economy expanded 3.3 percent in 2001, far slower than the minimum 6 percent that the International Monetary Fund and World Bank say the country needs in annual growth to avoid social unrest. The October 12, 2002, terrorist attack on the resort island of Bali prompted Jakarta to cut its growth estimate to 3.5 percent last year and 4 percent this year.

Economists are concerned that growth will suffer because consumer spending will be slowed by inflation worries and the higher cost of living as the government weans the people away from the fuel subsidies that have been in place for more than three decades. Inflation touched 10 percent last year and the government forecasts a 9 percent rise this year. With about 40 million unemployed, there is concern that 2 million more jobs will be lost if foreign tourists do not return to Bali or if Indonesia, predominantly Muslim, suffers a backlash from a war on Iraq. Tourism receipts fell 37 percent last year to $3.4 billion. "Growth in domestic consumption has been slowing with investments," said Fauzi Ichsan, an economist at Standard Chartered Bank in Jakarta. "Sooner or later, it will affect the larger companies.

Companies that cater to the poor such as PT Ramayana (Lestari Sentosa) will be better protected while those catering for the middle-class will be hit, Fauzi said. To bolster its image as a country that is serious about tackling terrorism, the government enacted anti-terror laws and plans to prosecute the first of the Bali bomb suspects as early as this month. In December, usually its best month for tourism, foreign arrivals fell 9 percent to 281,928 visitors from the year before.

Indonesian exports last year rose 1.2 percent to $57 billion on higher oil and commodity prices and as foreign companies bought more machinery and manufactured goods. Nonoil exports, a measure of industrial activity, gained 2.8 percent to $44.9 billion.

Oil may continue to bring in more money as Brent crude for April delivery is trading at $32.61 a barrel. Brent, the benchmark for two-thirds of the world's oil, has risen 42 percent in the past year, partly on concern a war may disrupt exports from the Gulf.

Still, analysts say it may not be easy for Indonesia to even maintain exports at their current level. Indonesian exports are under pressure from China, Vietnam and other developing countries on costs. Moreover, a war in the Middle East would send shipment costs soaring by more than a third, the Jakarta Post reported, citing Barens Th. Saragih, chairman of the Indonesian Shipowners' Association.

Indonesia's central bank may also be under pressure to raise interest rates should inflation gather pace. Such a move would choke credit to businesses. Last year, Indonesia's currency, the rupiah, gained 16 percent, helping the central bank lower interest rates and spur economic activity. The benchmark three-month central bank bill yield fell to 13.117 by the end of 2002 from 17.428 percent when the year started. The yield was 12.682 percent in the latest auction. The rupiah has been little changed at 8,928 to the dollar compared with 8,955 at the end of December.