Indonesia's economy will remain robust this year but inflation will pose a serious threat, a UN Economic and Social Commission for Asia and the Pacific (UNESCAP) report predicts.

"In terms of inflation, there is a lot of concern due to the high oil and food prices," UNESCAP officer Nobuko Kajiura said Thursday.

In its latest survey conducted in December 2007, UNESCAP predicted the economy would grow by 6.2 percent this year, with the inflation rate reaching 6.4 percent, within range of the 6.2-6.8 percent target set by the government and the central bank.

The country's economy, the report said, was expected to remain strong as it would mainly be driven by private consumption and supported by higher domestic and foreign investments.

Nobuko said, however, the country's inflation rate could rise should global food and crude oil prices continue to increase.

Oil prices now hover around US$106 a barrel while key commodity prices have reached record highs since brokers shifted their investments from stock markets to commodity markets.

"The increase in food prices will directly impact poor people," said Nobuko. "Obviously, (in terms of proportion of income) the spending of poor people on food is higher than the wealthy's," she added.

Nobuko said the government needed to further promote a social safety net of public services, including welfare, unemployment benefits, healthcare and homeless shelters, to prevent more people from falling into poverty.

To control the inflation rate, the report said, monetary authorities needed to carefully introduce credible monetary policies to lower inflation expectations.

The country's central bank, Bank Indonesia (BI), has maintained its interest rate at 8 percent since December last year.

BI said the high inflation rate was caused by external factors.

The report also said the Asia-Pacific region was likely to see its economic growth moderating from 8.2 percent in 2007 to 7.7 percent this year amid the looming economic recession in the United States.

If the United States falls into recession, the impact on the region would be harsh, the report said.

A sharp downturn in the U.S. economy, it said, would hit exports from Indonesia, Thailand, the Philippines and Malaysia; but China would remain resilient as strong domestic demand should cushion the external shocks.

Regarding the U.S. subprime mortgage crisis, UNESCAP said, "At present, Asia-Pacific economies remain relatively immune to the credit crunch".

Asia-Pacific borrowers are more conservative because they learned their lessons from the Asian financial crisis a decade ago, said the report.

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