Bappenas predicts 7%-9% inflation

JAKARTA (JP): The National Development Planning Board (Bappenas) expects inflation in the April-December 2000 budget year to average between 7 percent and 9 percent.

Bappenas chairman Junaedi Hadisumarto said on Monday the inflation rate was projected to gradually fall near the world's level of between 3 percent and 5 percent by 2004.

"The still relatively high inflation (in the 2000 budget year) has taken into account the planned increase of government administered prices, including fuel and electricity," Junaedy told the House of Representatives Commission IX on financial and development affairs.

The government is still debating with the House over plans to reduce subsidies on fuel and electricity. The government earlier proposed an average 20 percent hike in fuel prices and 35 percent increase in electricity rates.

In comparison, Bank Indonesia expects inflation in the budget year to be at between 5 percent and 7 percent after taking into account the increase of government administered prices and the reimposition of import duty on rice and sugar.

Price stability is a crucial part of the country's economic recovery program. The economy was hit by hyperinflation of more than 77 percent in 1998 when the economic crisis deepened. Inflation in 1999 stood at 2.01 percent, while inflation in the current 12-month budget ending on March 31 is expected to be at 1.9 percent.

A lower inflation would allow domestic interest rates to decline further, which in turn would provide a stimulus for the real sector to restructure its debts, and to make bank credit cheaper.

Bappenas expects the exchange rate of the rupiah to the U.S. dollar in the 2000 budget year to hold between Rp 6,500 and Rp 7,000, and has projected the same level over the next five years.

The planning board forecasted real gross domestic product (GDP) to grow by 3.8 percent in the nine-month 2000 budget year. It projected the economy to resume its precrisis growth level of between six percent and seven percent in 2004.

The board said the 3.8 percent economic growth would particularly be driven by household consumption, and government spending.

The board said investment and exports could not yet be expected to push the economy.

Investment and exports are projected to become the largest contributor in the 2001 budget year, the board said.

"The initial phase of the economic recovery would be driven by household consumption and government spending as a stimulus to the economy. But as the bank and corporate restructuring programs gain momentum in the following year, economic growth is expected to be accelerated particularly by investment," Junaedy said.

Junaedy said the economic recovery could only be attained on condition of domestic political stability, favorable external conditions and the smooth implementation of the economic reform programs.

Bappenas expects international oil prices to be at US$18 per barrel this year, and to fall slightly to about $17 per barrel over the following years.

"Per capita income, which plunged to half of the precrisis level, will continue to increase and is projected at $1,300 in 2005," Junaedy said.

The board said current account transactions were still expected to be in surplus of 1.9 percent of GDP this year, and would start to be a deficit of 0.5 percent of GDP as of 2002.

Bappenas said the deficit was the result of an accelerated increase in imports as the country's production system started to recover.

The board said the state budget would remain in deficit in 2000 and 2001, respectively at 4.7 percent and 4.3 percent of GDP, and would gradually reach a balance in 2004.

"The large deficit in the two years is needed to push the economy through the government sector because the private sector is still at a consolidation stage," Junaedy said.

He expected the budget to have a surplus in 2005.

Bappenas said government foreign debt stock in 2000 was expected to be at 41.9 percent of GDP, and was projected to gradually decline to 25 percent in 2005. (rei)