Dion Bisara, Jakarta – The World Bank revised down its 2010 growth forecast for Indonesia by 0.1 percentage points to 5.9 percent on Thursday.

Its quarterly report showed the country's growth softening, due mainly to domestic factors such as weather-related disruptions to agriculture and mining.

Looking toward next year, positive trends in investment and strength of private consumption are expected to continue, and the World Bank is forecasting a mild pickup in growth to 6.2 percent.

Its report highlights capital inflows, which are attracted by Indonesia's higher yields, stronger growth prospects and improving creditworthiness relative to higher-income economies, which will provide opportunities as well as will pose risks for Indonesia to manage.

"These flows bring benefits, such as lowering financing costs, but they can also raise macroeconomic and prudential policy concerns," the World Bank said in its report.

Meanwhile, demand from rapidly growing emerging markets, especially China, coupled with monetary expansion in the United States and other countries have helped drive up global prices in non-energy commodities, including food and raw materials.

Both of these global trends are supportive of Indonesia's balance of payments position, the bank said, but present risks due to potential future reversals and rising inflation, especially in food.

"The challenge is to maximize the opportunities presented by capital inflows and rising commodity prices for Indonesia while managing their risks" said Shubham Chaudhuri, the World Bank's lead economist for Indonesia.

"These include, for example, enhancing incentives for foreign direct investment to help to shift inflows toward longer-term investments."

However, the Indonesian government is standing by its prediction that the largest economy in Southeast Asia will grow by at least 6 percent this year. It says increased government spending and growing domestic demand will fuel the country's expansion.

"The World Bank has their prediction, but we are still optimistic the growth can be 6 percent this year and 6.4 percent next year," said Agus Suprijanto, interim head of Fiscal Management Office at the Finance Ministry.

"Household consumption is still strong, while government spending is expected to pick up in the fourth quarter. Investment also continues to be strong and export will be supported by high commodity prices."