Aditya Suharmoko, Jakarta – The World Bank has revised down its forecast on Indonesia's economic growth for this year from 6.4 percent to 6.0 percent after adapting to heightened financial turmoil in the US and the global economic slowdown.
"Indonesia's gross domestic product (GDP) growth is predicted to decline from 6.3 percent in 2007 to 6 percent this year," the World Bank report said.
Last year, the World Bank predicted the country's economy to grow by 6.4 percent in 2008 despite the global economic slowdown.
The report also said the country's exports would slow from 8 percent in 2007 to 7 percent in 2008, but domestic demand, especially investment and consumption, would remain robust.
"Indonesia is expected to weather the global economic slowdown reasonably well, with growth returning to 6.4 percent in 2009," the report said.
The global economic slowdown has gone beyond the expectations of most analysts, and prompted the Indonesian government to revise the 2008 state budget to adjust to the current global economy.
"I think the (current revision of the) state budget is realistic," the World Bank's lead economist William Wallace said Tuesday.
Via teleconference, the World Bank's chief economist for East Asia and Pacific, Vikram Nehru, said the global economic slowdown would affect East Asia, including Indonesia, but overall economic growth in the area would remain healthy because the countries there had put sound macroeconomic policies in place.
"East Asia has been able to diversify its export markets; so even though there is a decline in demand from the US, East Asia has been able to compensate by exporting larger amounts to Europe and other developing countries," Vikram said.
The World bank said East Asia, especially China, had become a "growth pole" in the world's economy, acting as a counterweight to the slowing industrial economies.
However, Vikram warned against the surge in key commodity prices. "The high food prices must be a considerable concern to mitigate the impact of global economic slowdown to the poor," he said.
According to the World Bank, high food prices will burden poor people more than rich people because poor people spend a large part of their income on food.
Vikram also said the government needed to be careful with its subsidies program. "Any subsidies need to be temporary and addressed to the right group, but subsidies tend to be permanent; withdrawing them would be a political problem," he said.
The World Bank's director for Indonesia, Joachim von Amsberg, earlier criticized the government for insisting on keeping its fuel subsidies program.