GOVT FORESEES BETTER ECONOMIC GROWTH IN LATE 2007

By Andi Abdussalam

Jakarta, July 13 (ANTARA) - The government seems upbeat the economy will grow better in the second semester of 2007, though it failed to achieve its growth target in the first half of the year.

        Initially set at 6.3 percent, the economy only grew 6.03 percent in the first half, but there are grounds why the government is optimistic.

        The economic growth hit six-month highs in June, bringing the figure of economic growth in the second quarter at a range of 6-6.11 percent from 5.97 percent in the first quarter.

        "This is very convincing and provides a conducive climate," Anggito Abimanyu, head of the finance ministry's fiscal policy board, said.

        Indonesia's economy is estimated to have grown by 6.04 percent in the first half of 2007 on improving economic conditions in June.

        With the economy expanding in the range of 6-6.1 percent in the second quarter, the government is optimistic about the economy growing by 6.3 percent as projected, he said.

        Looking ahead, the Finance Ministry saw the economy in the third and fourth quarters expanding by 6.3 percent and 6.5 percent respectively. If the third and forth quarters' figures are realized, the economy will grow 6.4 percent in the second semester, or 6.22 percent for 2007.

        Unlike the government, the House of Representatives is less optimistic with the economic growth in the second semester of this year. In a debate on a revised 2007 state budget, the House suggested that the economic growth for 2007 should be set at 6.1 percent, lower than the previous target set by the government at 6.3 percent.

        After five hours of heated debates on Thursday night, however, the government and the House were finally able to agree on the figures of the economic growth assumption in the revised 2007 state budget.

        The heated discussions centered on the economic growth target for this year with Ramson Siagian of the Indonesian Democratic Party-Struggle (PDIP) faction insisting the economy would grow only 6.1 percent and Finance Minister Sri Mulyani Indrawati sticking to the initial government target of 6.3 percent.

        Both the government and the House, however, finally agreed that the economy would expand in the range of 6.1-6.4 percent this year.

        "If the DPR wants a pessimistic growth rate of 6.1 percent, the upper growth rate should be raised to 6.4 percent. The range of 6.1-6.4 percent accommodates both the optimistic and pessimistic growth rates," Sri Mulyani said.

        Ramson said judging by previous records, economic growth in the second semester would not perform better than in the previous one.

        "What is more, the government recently proposed to cut capital expenditure from Rp78 trillion to Rp68 trillion," he said.

        The finance minister said with the economy estimated to have grown in the range of 6-6.11 percent in the second quarter, the economic growth rates in the third and fourth quarters were likely to reach 6.3 percent and 6.5 percent respectively.

        "The third and fourth quarter growth is to be driven by high government spending, investment, export and household consumption -- the prime engine of growth," she said.

        Investment, which is expected to fuel economic growth, will also increase in the second semester. The investment in the second semester of 2007 far exceeds the Investment Coordinating Board (BKPM) target of Rp41.54 trillion, BKPM head Mohammad Lutfi said.

        The Indonesian government licensed foreign and domestic investment projects worth Rp65.27 trillion in the first semester of 2007, up 52.60 percent from the same period last year.

        "Of the total, Rp36.9 trillion (US$4.1 billion) came from foreign investment and the rest from domestic investment," Mohammad Lutfi said.

        The BKPM has set the target of attracting domestic investment worth Rp11.58 trillion and foreign investment worth Rp29.96 for the first half of 2007.

        Convinced with better growth in the second semester of this year, the government has also revised its initial inflation target from 6.5 percent to 6 percent.

        Under the revised 2007 state budget, the inflation rate target for 2007 is set at 6 percent or 0.5 percent lower than the initial projection of 6.5 percent.

        "Though the government is able to provide the needed goods and services, inflation would fluctuate due to psychological effect and prices will rise before Lebaran festivities," Central Bureau of Statistics (BPS) head Rusman Hariawan said.

        He said however that the BPS predicted inflation would remain lower than the 6.5 percent level as set in the 2007 state budget.

        "If we look back to the past, there were fluctuations in September and October during the fasting month and the post-fasting Lebaran festivities," he said.

        Bank Indonesia (BI) Governor Burhanuddin Abdullah believed full-year inflation rates would hit the central bank's inflation target of 6, plus or minus 1, percent for 2007 and of 5, plus or minus 1, percent for 2008.

        The central bank also voiced its optimism over better economic conditions in the second semester of 2007. Burhanuddin Abdullah said BI was optimistic the economy would grow by more than 6 percent this year, citing robust lending growth as a reason.

        "Apart from that, with the state budget realization rate expected to improve in the third and fourth quarters, economic growth is likely to exceed the figure," Burhanuddin said following a meeting of the bank's board of governors this week.

        The meeting agreed that the economy would perform better in the second semester, he said. The economy in the two previous quarters was on the right track and it would continue to expand during the rest of the year, he said. (A014/a/b003/B003). (T.A014/A/A014/B003) 15-07-2007 00:46:35