WB Cuts Indonesia's Economic Growth Forecast

Jakarta, Oct 4 (Antara) - The World Bank (WB)has cut its projection for Indonesia`s 2013 economic growth rate from 5.9 percent to 5.6 percent. "Indonesia`s economy has kept adjusting itself in view of weakening of commodity prices, tighter external financing and lower domestic demand," the bank`s chief economist, Jim Brumby, stated in an exposition of the bank`s latest quarterly report on Friday. The earlier forecast had been published in the bank`s quarterly report issued in July and predicted that Indonesia`s economy would grow at the rate of around 5.9 percent till the end of the year and later increase to 6.2 percent in 2014. The weakening forecast was a result of growth expectations hovering around 5.3 percent, as international market conditions remain volatile, despite some recovery in the developed countries. Brumby stated that Indonesia`s economic resilience and its efforts to protect itself against the ever-changing external challenges depended much on macro-economic policies that have been formulated and implemented by the government. One such change, Brumby pointed out, was the Indonesian government`s success in reducing spending on fuel subsidies in anticipation of various short-term fiscal risks. "Further steps related to fuel subsidies would further protect Indonesia from various short-term fiscal risks and at the same time provide funds for short-term investment in the fields of infrastructure and social programs," he added. The World Bank`s chief economist said the Indonesian government must also conduct structural reforms that will involve two important elements, namely communication, which was clearly linked to policy changes and a strong commitment to policy implementation. "Investors and the markets must be assured that the economic upheaval will make the government sharpen its focus on producing coordinated reform policies. This will ensure an improvement in direct investment," Brumby noted. He further stated that the Indonesian government must make efforts to calm the market because the country`s domestic market and its potential remained attractive compared with other developing countries. In its report, the World Bank also reminded that an improvement in goods flows from the Jakarta port of Tanjung Priok in the short-term was very important for boosting competitiveness. Meanwhile, infrastructure development would be the main determinant of trade performance and economic growth in the long term, it added. The World Bank continues to expect the country`s current account deficit to remain sizeable this year at 3.4 percent of the Gross Domestic Product (GDP), although the government has issued a slew of policies to reduce it. However, it is expected to slip to 2.6 percent in 2014. With regards to inflation, it is projected to reach its annual peak during the last quarter of this year after being pushed up temporarily due to subsidized fuel price increases. Without significant surprises, inflation is expected to hover at around 6.7 percent during 2014, the report pointed out.