World Bank: RI continuing to record robust growth

Antara News, Tuesday, September 28, 2010 20:17 WIB

Jakarta (ANTARA News) - The World Bank in its economic quarterly report on Indonesia released on Tuesday, noted that the country`s economy continues to record robust growth, unlike many of the world`s major economies.

"This growth has allowed the policy focus to shift from near-term uncertainty towards laying the foundations for longer-term growth to allow the government to better support investment and stronger social outcomes for all Indonesians," the bank says in its quarterly report.

Through greater investments in infrastructure, enhanced skills development and improvements in productivity, it would be possible to achieve growth of over 7 percent by 2014 as set by the Indonesian government, it says.

Indonesia recorded 6.2 percent growth in the second quarter, the fastest since the global economic crisis struck two years earlier. Growth was driven primarily by domestic demand, particularly private consumption, which has led to a rise in imports.

Despite the weak spending by the government, the growth is expected to accelerate in the second half of 2010. These growth patterns are expected to continue over the near-term, with a further pick-up in investment expected related to the improvement in investors? access to credit and the proposed increase in public spending on capital expenditures in 2011.

Indonesia?s inflation was observed to have returned to historical averages by last August, with headline inflation volatile between June and August, mainly due to the impact on food prices of the extremely wet `dry? season.

The unusual weather impacted food prices especially for spices and then rice. Local rice prices are now much higher than the international price, impacting poorer households especially since a greater share of their expenditures is on food. These disruptions are expected to be temporary, it predicts.

Accompanying the release of the quarterly, Enrique Blanco Armas, the World Bank`s Senior Economist for Indonesia, said the bank saw a renewed confidence in the country`s prospects and a strong return of capital inflows, referring to the inflow of USD 7.3 billion between June and August.

"Looking forward, a policy challenge in the near-term is how to address any rise in inflationary pressures while ensuring less volatile and more sustainable capital flows that can help Indonesia achieve its growth potential and support the improvement of the quality of life for all Indonesians," he said at a gathering on Indonesia`s economic outlook, organized jointly by the bank and Jakarta-based Paramadina University.

He went on to say that policy reforms across multiple areas, supported by targeted expenditures, will help to meet the government`s medium-term targets for growth and poverty reduction. Needed reforms include: greater public investment for infrastructure to address the constraints on private sector activity due to Indonesia`s stretched infrastructure.

Also, on facilitating access to financial services which can cushion the impact of shocks and boost poor households` ability to start up businesses; and reducing the mismatch between the skills of workers entering the labor market and the skills demanded by employers.

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