Govt expects higher growth next year despite doubts

Urip Hudiono, The Jakarta Post, Jakarta

The government is forecasting higher growth of 6.6 percent next year, despite renewed doubts over the achieving of this year's growth target.

"The figure for next year is still a preliminary one," Finance Minister Sri Mulyani Indrawati said Tuesday after a Cabinet meeting to discuss the government's work program for 2008.

"Of course we want higher growth, but we also have to see how this year, and how this first semester, turn out first."

Mulyani cited the possibility of Indonesia's economy expanding by between 5.9 and 6 percent next year -- a median figure derived from analyst forecasts of growth of between 5.5 and 6.5 percent.

For this year, the government is still targeting 6.3 percent growth, Mulyani said, but the figure could be less as a result of the slow revival of direct investment.

The government's work program serves as the basis for the drafting of the annual budget, which includes such macroeconomic assumptions as gross domestic product growth, inflation and the key interest rate. The budget is usually revised halfway through its course in mid-year.

"We will need to see direct investment growing by 12.3 percent this year to achieve that 6.3 percent growth target," she said.

"That will be quite an increase from the 2.9 percent growth (in direct investment) last year. Many analysts and economists are questioning whether we can actually achieve this."

She said the government might also have to widen the 2007 budget deficit to 1.5 percent of GDP, and run another budget deficit next year so as to ensure more spending on infrastructure.

The economy grew by a disappointing 5.5 percent last year -- mostly on the back of government spending, which grew by 9.6 percent, and higher exports, which increased by 9.2 percent. The 2006 growth figure was lower than the 5.6 percent growth achieved in 2005.

Actual foreign direct investment (FDI) dropped by nearly a third to US$5.97 billion in 2006 from $8.91 billion the previous year, figures from the Investment Coordinating Board show.

All this was despite the government having issued special regulatory packages to encourage infrastructural development and improve the country's investment climate.

"What this means is that the government still has a lot of hard work to do," Mulyani concluded.
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