Govt optimistic about growth target

The Jakarta Post ,  Jakarta   |  Sat, 04/08/2006 9:46 AM  |  Business

The Jakarta Post, Jakarta

Coordinating Minister for the Economy Boediono said he was still optimistic that the economy would grow at a faster rate this year, despite slower growth forecasts from the Asian Development Bank and World Bank.

He also said that inflation could be brought down to single digits this year

""I think we can achieve single-digit inflation. A double-digit rate would be abnormal,"" Boediono told the press Friday when asked to comment on the 2006 Asian Development Bank report on the global economy published Thursday.

The ADB report said that the Indonesian economy was expected to grow at a slower rate of 5.4 percent this year, compared to 5.6 percent last year, as high interest rates and strong inflation hampered investment and domestic consumption.

The new ADB growth projection was lower than the 5.8-6.0 percent forecast made by the bank in September.

The ADB also said that inflation this year would likely reach a double-digit rate of around 14 percent.

The government expects growth this year to reach 6.2 percent, and inflation to come down to around 8 percent, from more than 17 percent last year.

""Personally, I think the 6 percent growth target is still achievable if we can maintain the current good economic, social, and political environment,"" Boediono said.

Meanwhile, Finance Minister Sri Mulyani Indrawati said that the government would work hard to accelerate spending over the rest of the year to help push domestic consumption and boost economic growth.

The economy in the first quarter of this year grew by 4.8 percent year-on-year, less than expected, as consumption and investment remained sluggish, according to a recent estimate from Bank Indonesia.

The administration of President Susilo Bambang Yudhoyono is under pressure to deliver average economic growth of more than 6 percent per year over the five-year period ending 2009 to help resolve the country's dire unemployment problem. The administration has vowed to improve the domestic investment climate in a bid to attract badly needed investment, which is essential if the higher growth target is to be achieved.

Meanwhile, the World Bank predicts that Indonesia's gross domestic product will grow by 5.5 percent this year, at the low end of its previous 5.5-5.6 percent forecast.

The bank said in its latest economic and social update on Indonesia, as quoted by Dow Jones, that this year's growth would likely remain almost unchanged from last year's 5.6 percent, well below the government's 6.2 percent target.

""Growth is expected to bottom out in the first or second quarter (of 2006) before picking up in the second semester to above 6 percent,"" the bank said.

Government consumption and investment is expected to be high throughout 2006, increasing by 51.5 percent during the year after 8.1 percent growth in 2005, it said.

Private investment and spending on consumer durables are expected to pick up in the second half as the impact of higher fuel prices run their course and inflation and interest rates come down. But for 2006 as a whole, private consumption growth is expected to slow to 2.1 percent, from 3.95 percent in 2005, with private investment growth dropping to 3.0 percent from 9.9 percent, it said.

""The deceleration in private investment is expected to be more severe than previously envisaged,"" said the report, which was released Friday and posted on the bank's Web site

It said that macroeconomic stability was a prerequisite to boosting the country's investment levels.

""Doubts in this regard continue to concern investors in Indonesia, though perceptions from the business sector did improve between 2003 and 2005,"" the bank said.

A stronger recovery in growth is likely to materialize in the second half of 2006 as long as the government can maintain a sound mix of expansionary fiscal policy and tight monetary policy through the first half, the bank said.

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