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While the economy is expanding at a descent clip, the growth
achieved to date has done little to help mitigate poverty as most of it
has taken place in non-labor intensive sectors, an economic think tank
says.
"Macroeconomic stability has yet to be followed by improvements in the
real sector, especially given that the indicators show increasing
unemployment and poverty," said Iman Sugema of the Institute for
Development of Economics and Finance (Indef) during a seminar Monday on
the economic outlook for 2007.
Central Statistics Agency figures show that the economy grew by 5.2
percent year-on-year in the second quarter of 2006, and by 5.5 percent
in the third quarter. On-year growth in the first quarter stood at 4.7
percent.
Meanwhile, the BPS's latest poverty statistics show that as of the end
of March, some 17.75 percent of the population -- or 39.05 million
people -- were living below the poverty line, an increase of around
four million from a year earlier.
Explaining the contradiction, Iman said recent growth had mainly been
in non-manufacturing sectors that provided relatively few job
opportunities, whereas manufacturing industry was still struggling
following the last fuel price hikes and the resulting high inflation
and interest rates.
"The fact that most banks are still hesitating to increase their
lending to the real sector despite the decline in the central bank's
benchmark interest rate is as a sign that the banking sector continues
to consider investing in real sector as being too risky," said Iman.
Looking forward, Indef predicts 5.85 percent growth next year, far
lower than the government's 6.3 percent forecast.
"Net investment has been in negative territory all year. It's hard for
investment to suddenly pick up significantly as it takes time for any
investment plan to come to fruition," he said.
"Economic growth of more than 6 percent (in 2007) is almost
impossible," he said.
However, other economists speaking at the seminar did not share Iman's
pessimism.
Anton Gunawan, Citigroup's chief market analyst, predicted that
economic growth would reach 6 percent next year.
"Growth could be higher if the government is able to deliver on its
promises of overhauling the investment, tax and labor legislation."
However, he admitted that the 6.3 percent growth scenario painted by
the government looked a little on the optimistic side, though it could
still be achieved if there was a significant improvements in the
monitoring of spending.
Against a backdrop of softening commodity prices, including crude oil
prices, and the government's stated intention of continuing to
subsidize domestic fuel prices, Anton forecast that inflation would
come down to 6 percent and stay at this level for the next two years.
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