Analysts urge govt to tackle inflation<\/p>\n
JAKARTA (JP): Economists are urging the government to continue
\neconomic reforms and secure adequate stocks of basic staples to
\nprevent hyperinflation in the country's economy.<\/p>\n
Focusing on economic reforms would help stabilize the rupiah,
\nMari Pangestu, a senior economist at the Center for Strategic and
\nInternational Studies, said yesterday.<\/p>\n
She noted that the sharp depreciation of the rupiah was the
\nprimary cause of spiraling prices of consumer goods because
\nIndonesia's products had high import contents.<\/p>\n
Mari also said the government should secure adequate supplies
\nof basic food items to control inflation.<\/p>\n
\"The distribution system should also be improved,\" she added
\nwhile commenting on the recently announced 12.76 percent monthly
\ninflation rate for last month.<\/p>\n
She suggested that the plans to reduce subsidies on basic
\nnecessities be implemented gradually to curb excessive
\ninflationary pressures.<\/p>\n
The government agreed in January to an IMF-arranged economic
\nreform program in exchange for bailout funds totaling US$43
\nbillion. The reform program includes abolishing subsidies
\nbeginning next month and dissolving state monopolies, including
\non basic food items.<\/p>\n
Mari said the International Monetary Fund (IMF) had indicated
\nthat it would allow a gradual reduction of subsidies.<\/p>\n
Raden Pardede, an economist at state-owned PT Danareksa
\nSecurities, agreed that the battered rupiah was the main reason
\nbehind the steep inflation.<\/p>\n
\"The depreciation of the rupiah (by about 70 percent against
\nthe U.S. dollar) has stalled production operations at most plants
\nwhich largely depend on imported basic materials,\" Raden noted.<\/p>\n
He shared Mari's view that adequate supplies of basic food
\nitems were crucial for checking inflation because they
\ncontributed some 35 percent to Indonesia's consumer price index.<\/p>\n
Mari added that if hyperinflation occurred, the function of
\nthe rupiah as a store of value would disappear, prompting people
\nto chase the U.S. greenback or durable goods.<\/p>\n
Raden agreed that since many expected future prices to soar,
\nthis expectation would be factored in their transactions, thereby
\ncreating what he called a self-fulfilling prophecy.<\/p>\n
\"I think what is urgently needed now is a rebuilding of
\nconfidence,\" he said, adding that the best way to achieve that
\nwas to firmly implement the IMF economic reform program.<\/p>\n
He said he was against the plan to peg the rupiah to the U.S.
\ndollar at a fixed exchange rate through a currency board system
\n(CBS) to contain inflation and stabilize the currency as
\nArgentina did in the early 1990s.<\/p>\n
\"Argentina's hyperinflation was caused by excessive money
\ncreation, while Indonesia's is being fueled by a supply side
\nproblem,\" he pointed out.<\/p>\n
Mari said if Indonesia was not sure about meeting the
\nnecessary preconditions for a CBS, then the government should
\nfocus its attention on the IMF economic reform program.<\/p>\n
President Soeharto said Sunday he was studying the CBS to
\nsupplement the IMF program because he believed the Jan. 15 reform
\npackage agreed to with the IMF seemed unable to stabilize the
\nrupiah.<\/p>\n
But the currency board plan has met strong opposition from the
\nIMF and other countries participating in the IMF-sponsored
\npackage. They have argued that Indonesia's situation is not
\nviable for such a fixed rate regime at this point in time.<\/p>\n
Raden suggested Indonesia instead learn from South Korea's new
\nPresident Kim Dae-jung who showed a strong commitment to the IMF-
\nsponsored reform programs, and managed to return public
\nconfidence in the economy.<\/p>\n
He contended that if Indonesia fully implemented the IMF
\nreforms, confidence would return over time, rating agencies would
\nupgrade Indonesia's sovereign rating and investors would come
\nback to improve domestic liquidity.<\/p>\n
\"A healthier and stronger banking system will revive economic
\nactivities and return the rupiah exchange rate to a market
\nequilibrium that reflects economic fundamentals,\" Raden added.
\n(08)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/analysts-urge-govt-to-tackle-inflation-1447893297",
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