The economy shrank 14 percent in 1998, and the annual inflation rate peaked at 82 percent in September. But economists said that if inflation and interest rates continued to fall in Indonesia, it would help revive confidence and growth. The lowest central bank lending rate stands at around 25 percent. Mr. Sabirin said that he expected interest rates on central bank paper to fall in the next regular auction this Wednesday, but added that he did not think it would undermine the strengthening rupiah because confidence in Indonesia was increasing. He also said that ''several banks have restarted lending,'' and that more lending was likely as the country's tentative recovery continued.
Credit is crucial for reviving industrial and commercial output.
Until now, banks have been reluctant to lend because the cost of funds exceeded the interest rate on their loans. Banks were also worried that borrowers would be unable to repay loans. Adding to the bullish mood Tuesday, the Indonesian investment minister, Marzuki Usman, said that he expected foreign investment in the resource-rich country in 1999 to rebound to 1997 levels.