Inflation may exceed 80% this year: Indef<\/p>\n
JAKARTA (JP): The worsening economy and the government's
\n\"populist\" approach could push this year's inflation rate to over
\n80 percent, the Institute for Development of Economics and
\nFinance (Indef) predicts.<\/p>\n
The Institute's program director, M. Nawir Messi, said
\nyesterday that the inflation rate might even reach three digits,
\nif the situation did not improve.<\/p>\n
Nawir said one of the factors that would drive inflation rates
\nhigher this year was the government's \"populist\" moves under
\nPresident B.J. Habibie, who replaced Soeharto when he resigned
\nlast month.<\/p>\n
\"Habibie's administration is facing numerous challenges,
\nmainly in getting the people's support, so he comes up with
\npopulist measures to win the people's hearts,\" he told reporters.<\/p>\n
The measures included accommodating demands to raise the
\nworkers' minimum wage and the civil servants' salaries, he said.<\/p>\n
The government's move to restore ailing banks by injecting
\nlarge funds into the banks, some of which should no longer be
\nsaved, was another populist move, he said, adding that the
\ngovernment had to print more money in order to keep the banks
\nalive.<\/p>\n
\"All this leads to hyper-inflation,\" he said, adding that the
\ngovernment's attempts to prop up the value of the ailing rupiah
\nwould be useless given the sharp increase in the money supply.<\/p>\n
Further depreciation of the rupiah, which at present has lost
\nabout 85 percent of its value against the U.S. dollar since
\nAugust last year, would continue to push up prices of imported
\ngoods, he said.<\/p>\n
According to the Central Bureau of Statistics, inflation
\nreached 35.05 percent in the January to May period this year,
\ncompared to 2.71 percent in the same period last year.<\/p>\n
The consulting agency challenged the 35.05 percent figure,
\nsaying that the inflation rate during the first five months
\nshould have reached 40.06 percent.<\/p>\n
Nawir said that hyper-inflation would decrease private
\nconsumption, which normally accounts for 60 percent of the gross
\ndomestic product (GDP) growth, he said.<\/p>\n
\"Based on this assumption, it is logical that the country's
\neconomic growth will contract by 10 percent,\" he said.<\/p>\n
He predicted that the number of poor people would reach 60
\nmillion people, much higher than the 50 million estimated by the
\nWorld Bank.<\/p>\n
\"With the current persisting trend, half of the country's
\npopulation could be poor,\" he said.<\/p>\n
Nawir said the tight monetary policy adopted by the government
\nwas no longer relevant to curb inflation.<\/p>\n
The government sharply raised interest rates to control the
\nrupiah's free-fall against the dollar initially, he said. But the
\nmove has proven ineffective in controlling the rupiah's
\nvolatility.<\/p>\n
\"By tightening liquidity through high interest rates, not only
\ndoes the government absorb idle public funds, but also productive
\nfunds,\" he said.<\/p>\n
Indef also urged that the state budget, which was revised in
\nlate January due to major changes in the economy resulting from
\nthe crisis, should be revised again because the existing budget
\nassumptions no longer reflect economic reality.<\/p>\n
The current revised budget is based on the assumption of an
\noil price of US$16 per barrel and a rupiah exchange rate against
\nthe U.S. dollar of Rp 6,000.<\/p>\n
Since then the rupiah, which closed yesterday at Rp 14,550
\nagainst the dollar compared to Rp 2,500 last July, has sunk
\nfurther, while the price of crude oil has also fallen to $12.50
\nper barrel.<\/p>\n
If the state budget is not changed and based on the assumption
\nthat the rupiah will average about Rp 10,000 to the dollar, the
\nstate budget could be Rp 39 trillion in deficit, he said. (das)<\/p>",
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