Aditya Suharmoko, The Jakarta Post, Jakarta
The Asian Development Bank has warned Indonesia a large part of its population is still vulnerable to shocks from staple foods inflation, as nearly half its citizens still live on less than US$2 a day.
Inflation, the ADB said in a statement sent to The Jakarta Post on Wednesday, is likely to increase from 6.6 percent in 2007 to 6.8 percent this year, triggered by the surge in domestic demand and global commodity prices, before lowering to 6.5 percent in 2009.
One factor contributing to the vulnerability, said the ADB, is the lack of adequately paid jobs, which underlines the importance of improving the environment for employment generation.
"The (economic) growth that has been achieved has not been accompanied by a commensurate increase in employment," said the statement.
The ADB predicted the country's economic growth, despite slowing down from 6.3 percent last year, would grow to 6.0 percent by the end of the year and to 6.2 percent in 2009.
Despite enjoying a gradual pickup in growth after the 1997 Asian financial crisis, the ADB said, the unemployment rate remains high compared to many East and Southeast Asian countries, with unemployment in August at 9.1 percent and underemployment at 27.6 percent of the labor force.
Underemployment describes the employment of workers with high skill levels in low-wage jobs that do not require such abilities, such as someone with a college degree working as a taxi driver.
"The labor force absorption into the formal sector has dropped from 81 percent prior to the financial crisis to around 11 percent," the statement said.
"(This suggests) a loss of competitiveness in labor-intensive manufacturing sectors such as textiles and clothing, as well as a mismatch between skills required and the skills possessed by the labor force."
To keep pace with healthy economic growth, the ADB called for improving the education system and ensuring the labor force had access to affordable and quality training.
The World Bank has also forecast Indonesia's economic growth as declining from 6.3 percent in 2007 to 6.0 percent this year. It revised down its earlier estimate that the country would see 6.4 percent economic growth.
Despite similar outlooks from both the World Bank and the ADB, however, the government is still upbeat the country's economy can grow by 6.4 percent this year.
"They (the forecasts) will be a reference. We're still optimistic the country can reach 6.4 percent economic growth," said the Finance Ministry's head of fiscal policy Anggito Abimanyu.
The government and the House of Representatives' budget committee set economic growth at 6.4 percent this year in their revision of the 2008 state budget.
A member of the House of Representatives, Dradjad H. Wibowo, however, doubted the country's economy could grow higher than last year.
"I think the ADB's forecast is more realistic than the target set by the government and the budget committee," said Dradjad.
He predicted the country's economy to grow by 6 percent at the maximum this year, in line with analysts' expectations.