RI economy improves but oil prices risky: ADB
RI economy improves but oil prices risky: ADB
Urip Hudiono, The Jakarta Post, Jakarta
Observing the recent improvement of investment to Indonesia, the
Asian Development Bank (ADB) has maintained its optimism about
the country's economy, revising its full-year growth outlook
slightly up to 5.7 percent, from an earlier estimate of 5.5
percent.
The Manila-based bank, however, warns that a recent surge in
global oil prices, which will translate into a ballooning of fuel
subsidy costs and further strain the state budget, may jeopardize
growth prospects, it said in a report released on Thursday.
As such, the bank is projecting South East Asia's largest
economy to only be able to grow by 5.9 percent next year, down
slightly from its previous 6 percent forecast, though still
maintaining its upward trend from 2005.
ADB said in an update of its 2005 Asian Development Outlook
released a revival in investments following the smooth transition
to a new administration in late 2004 has improved the economy.
"Indonesia's gross domestic product rose 5.9 percent in the
first half of the year, fueled by a 13.6 percent expansion in
fixed capital investments," the bank said. "The higher investment
was a major reason for a 35.4 percent jump in imports, while
exports grew by 27.5 percent."
The government's policy to continue subsidizing domestic fuel
prices, ADB said, had put Indonesia's fiscal position under
pressure, with both oil prices and fuel consumption rising, at a
time when the country's oil production was stagnating due to
underinvestment.
"Budgetary prospects in 2006 depend on the government's
willingness to address the current gap between the prices of
domestic subsidized oil products and world oil," the bank said.
"Although domestic prices have already been raised, they are
still well below world levels."
ADB is estimating that Indonesia's economic growth could be
affected by 1.1 percent downwards if global oil prices reach
US$70 a barrel.
The budget's deficit, meanwhile, could increase by 0.2 percent
under the same scenario.
On inflation rate, the ADB revised its price indicator
forecast for 2005 and 2006 sharply to 7.5 percent, from 5.9
percent and 5.4 percent, respectively.