BI to meet with new govt on inflation threat<\/p>\n
Tony Hotland, Jakarta<\/p>\n
Bank Indonesia plans to immediately meet with President Susilo
\nBambang Yudhoyono and his economic ministers to discuss economic
\naffairs, particularly ways to cope with rising inflationary
\npressure as a result of the global oil hike.<\/p>\n
Aslim Tadjudin, deputy governor of the independent central
\nbank, said that the most crucial issue faced by the new
\ngovernment and Bank Indonesia for the time being was how to keep
\ninflation in check.<\/p>\n
\"The biggest challenge now is how to keep inflation at a
\nmanageable rate, especially amid the strong external economic
\npressure of soaring oil prices,\" he said.<\/p>\n
Worldwide oil prices have been zooming to record highs over
\nthe course of the year, recently peaking at US$55 per barrel, due
\nto concern over shortages, especially with the winter drawing
\nnear.<\/p>\n
The oil hike increases the production costs of local
\nmanufacturers as they have to pay more for fuel, and import raw
\nmaterials at higher prices. Analysts have said that the higher
\ncosts will eventually be passed onto consumers, thus feeding on
\ninflation.<\/p>\n
Inflationary pressure in the remaining months of this year
\nwill also be stronger particularly due to higher demand for goods
\nand services during the current Muslim fasting month, and
\nupcoming Idul Fitri celebration as well as Christmas and New
\nYear.<\/p>\n
The economy has generally enjoyed a low inflationary
\nenvironment so far this year, enabling the central bank to cut
\nthe interest rate, which in turn has allowed commercial banks to
\nprovide cheaper loans for the consumer sector, thus maintaining
\nrobust domestic consumption, the main engine of economic growth
\nin the past few years.<\/p>\n
The current 2004 state budget assumes a full-year inflation
\ntarget of 7 percent.<\/p>\n
The surging oil prices have also put pressure on the new
\ngovernment to raise domestic fuel prices in a bid to reduce the
\nexpensive fuel subsidy. Higher fuel prices will increase
\ninflation.<\/p>\n
Elsewhere, Aslim said that the central bank will also discuss
\nways to accelerate economic growth, as promised by Susilo during
\nthe election campaign.<\/p>\n
\"With better cooperation, we hope to be able to realize a rate
\nof growth that is sufficient to offset the unemployment rate. We
\nneed to expand by 6 percent to 7 percent at least,\" said Aslim.<\/p>\n
The economy has been growing at a meager rate of around 4
\npercent per year during the past few years, a level deemed
\ninsufficient to provide enough jobs for the millions of
\nunemployed. The economy this year is expected to grow by 4.8
\npercent.<\/p>\n
On the latest weakening of the rupiah, Aslim said that it was
\ndue to non-fundamental factors such as dollar purchases by
\ncompanies to repay maturing overseas debts, and the initial
\nreaction of the financial market to the new Cabinet lineup.<\/p>\n
\"I suppose the market was indeed a bit unhappy and unimpressed
\nwith the Cabinet line-up. But then again, it was mostly due to
\nthe high demand from companies to pay their maturing offshore
\ndebts,\" he argued.<\/p>\n
Aslim asserted that the rupiah would further appreciate with
\nthe support from stronger regional currencies against the
\ngreenback, and that the fundamental things affecting the exchange
\nrate were still under control.<\/p>\n
The rupiah fell to Rp 9,115 per U.S. dollar on Thursday from
\nRp 9,080. It quickly bounced back, edging higher at Rp 9,050 on
\nFriday.<\/p>",
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