Sluggish investment holding back economic growth: World Bank

The Jakarta Post, Jakarta

Indonesia's economy may grow more slowly this year than in 2005 as private investment remains sluggish and only likely to pick up during the second half of 2006, the World Bank said in a report released Thursday.

In its latest economic update for the East Asian region, the Washington-based lender foresees Indonesia's gross domestic product (GDP) growing at only 5.5 percent for this year, or at the low end of its previous projection of between 5.5 and 6 percent.

This is slightly lower than the 5.6 percent growth to produce a GDP of Rp 2.79 quadrillion (US$310 billion) that Indonesia managed to achieve last year.

"Growth is expected to bottom out in the first or second quarter," the bank said in the report.

"The deceleration of private investments is expected to be more severe than previously envisaged."

World Bank country director for Indonesia Andrew Steer had previously said that growth in 2006 might only reach 5 to 5.5 percent if consumption and investment continued to be affected by the recent high inflationary and high interest rate environment after last year's double fuel price hikes.

Finance Minister Sri Mulyani Indrawati, meanwhile, said Monday that growth would likely reach 5.9 percent this year, lower than the government's previous 6.2 percent target, on concerns about slower investment and export growth.

The budget deficit could also widen to Rp 35 trillion, or 1 percent of GDP from the previous estimate of 0.7 percent, as the government will have to spend more on keeping state power firm PLN afloat after canceling plans to hike electricity prices.

Growth in private investment, along with consumption, experienced a severe slowdown last year at a time when the government was trying to create a more sustainable investment-driven economy from a consumption-driven one.

Investment grew by 2 percent during last year's fourth quarter compared to more than 9 percent in the previous one, figures from the Central Statistics Agency show.

If the government manages to maintain high public development spending and macroeconomic stability throughout 2006, the situation not be so bleak for Indonesia, the report added, saying that private investment and consumer spending could pick up in the second semester as inflation and interest rates come down.

For the region, the Bank sees the economies of East Asia growing at a slower 6.6 percent this year, after 6.8 percent last year and 7.5 percent in 2004, as the impact of high oil prices continues. It is, however, projecting that Southeast Asian economies will grow by 5.3 percent in 2006, faster than last year's rate of 5.1 percent.
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