The Asian Development Bank (ADB) Thursday predicted that Indonesia's economy in 2006 will grow at 5. 4 percent, slower than in 2005 when the figure was 5.6 percent and far below the 6.2 percent assumed in the state budget.

ADB economist Amanah Abdulkadir conveyed the outlook in Jakarta Thursday, saying the slowdown in economic growth would mainly be due to low private consumption because of the higher interest rate, high inflation and increased unemployment.

The inflation rate in the first semester of 2006 was expected to remain high because of the increased prices of goods, minimum wages and civil servants' salaries as a further impact of a fuel price hike.

"By the end of 2006, the inflation rate is to be 8 percent and it will drop to 7 percent in 2007 assuming that prices will increase gradually. The surplus in the current account is projected to reach 1 percent of PDB," Antara news agency quoted Amanah as saying.

Amanah reminded the Indonesian government that it had the obligation to pay back 9.4 billion U.S. dollars in foreign loans in 2006 including principals and interest.

The amount is equal with 14 percent of export revenue and 30 percent higher than loan payments in 2005.

"The government will try to cover the funding through the issuance of 5.7 billion U.S. dollars in bonds and seek 3.6 billion U.S. dollars in loans for programs and projects," he said.

According to ADB's projection, the government would find difficulties to reach the target of 8.6 percent annual growth for manufacturing industry in the medium term development plan (2005- 2009).

In 2005 alone, growth only reached 4 percent for the industry.

The target of economic growth at 6.6 percent in 2009 with the poverty rate declining to 8.2 percent and unemployment dropping to 5.1 percent could only be reached if the investment climate continued to improve, he added.

Amanah emphasized the need for the government to finalise draft laws on investment, tax, customs and labor.

Source: Xinhua