Inflation from robust growth under control<\/p>\n
JAKARTA (JP) An advisor to the minister of finance, Dahlan
\nSutalaksana, said here yesterday that any inflation arising from
\nthe rapid growth expected in the country's economy will be kept
\nunder control.<\/p>\n
Dahlan said that the relatively low-growth target of the money
\nin circulation and the more favorable situation in the industrial
\nsector will be able to curb the inflationary pressure.<\/p>\n
\"As a result, there will only be a slight chance of economic
\noverheating,\" he told a year-end press briefing.<\/p>\n
The demand and the supply sides of the economy will be much
\nmore favorable than those in 1990, when the country's economy was
\noverheating, he said of the economic indicators next year.<\/p>\n
In 1990, economic growth reached 7.2 percent with the
\ninflation rate reached 9.9 percent and the money in circulation
\n(M2) expanded by 44.2 percent.<\/p>\n
Dahlan, a former executive of Bank Indonesia (the central
\nbank), said the rapid growth expected in industrial activities,
\nresulting from the sharp increase in investment approvals this
\nyear will, therefore, cause less inflationary pressure than in
\n1990.<\/p>\n
He estimates that inflation will finish at around 10 percent
\nthis year and remain at the same level in 1995.<\/p>\n
Economic overheating may take place if demand growth exceeds
\nsupply, he said, adding that this difference is what eventually
\nleads to increased inflationary pressure.<\/p>\n
\"Such was the case when the Indonesian economy suffered an
\noverheating in 1990,\" he added.<\/p>\n
Ideal growth<\/p>\n
Asked about the ideal growth of the Indonesian economy next
\nyear, Dahlan said that between seven and 7.5 percent would be
\nconsidered safe for the Indonesian economy.<\/p>\n
\"At such growth levels, the inflation rate could be still
\nchecked at below 10 percent,\" he said.<\/p>\n
Dahlan acknowledged that the economic overheating indicator is
\ndifferent from one country to the next. \"The economy in the
\nUnited States, for example, is considered overheated when the
\ninflation rate reaches three percent,\" he added.<\/p>\n
The other indicator of a healthy Indonesian economy is the
\nmore favorable monetary system, he said in reference to Bank
\nIndonesia's commitment to limit the growth of the money supply at
\naround 20 percent.<\/p>\n
\"Limiting the growth of the money in circulation at around 20
\npercent will help to curb inflationary pressures,\" he said.<\/p>\n
About the country's balance of payments, Dahlan said that the
\ncurrent account deficit will remain at a safe level even though
\nthere will most likely be a sharp increase in imports.<\/p>\n
He said an increase in export earnings will offset any sharp
\nincrease in imports, adding that the current account deficit will
\nhover around the same level of this year's US$3.3 billion.<\/p>\n
Dahlan forecasted that the sharp demand for lending next year
\nwill not cause a sharp increase in interest rates, given the fact
\nthat most of state banks, which control over 50 percent of the
\nlending market, will still be in the consolidation process.<\/p>\n
In means that interest rates will remain around this year's
\nlevels of between 13 and 15 percent per annum as state banks,
\noften called the \"market leader\", will have no pressure to
\nincrease their interest rates, he said.<\/p>\n
He said that the central bank's commitment to maintain the
\nmoney in circulation at around 20 percent will alleviate pressure
\non the banking industry to increase interest rates.<\/p>\n
\"The rise in interest rates will occur only as an adjustment
\nto the rise in the interest rates in the United States,\" he said.
\n\"But it will be small.\"(hen)<\/p>",
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