Consumer confidence continues to decline

Consumer confidence continues to decline

JAKARTA (JP): Indonesia's consumer confidence continued to
worsen last month due to fears that civil unrest might erupt and
degenerate into violence, according to research conducted by the
Danareksa Research Institute.

The consumer confidence index, which has been on the decline
now for four consecutive months, fell further to 96.3 in May from
97.9 in the previous month marking an increase in pessimism with
losses were recorded in both the present situation index and the
expectation index, Danareksa said on Wednesday.

"The present situation index ended down 2.5 percent at 77.7 on
mounting economic and political uncertainties, while the
expectation index posted a further loss of 1.1 percent to 110.3
as consumers grappled for direction amid confusion over domestic
political developments," Danareksa said.

The institute said that consumers were worried about their
livelihoods as sentiment was already grim on fears of inflation
resulting from the unceasingly bad political news.

"Both rural and urban respondents were pessimistic about the
current situation," the institute said.

Overall confidence across the archipelago was bearish with
pessimistic responses outweighing optimistic responses, and with
the sentiment index for rural respondents moving into negative
territory at 97.5 in May as compared to 102.7 in April, the
institute said.

The institute also said the confidence index for family income
sagged after the 30 percent hike in fuel prices which is to be
followed by a 20 percent hike in power charges next month. Both
hikes represent desperate attempts by the government to plug the
ballooning budget deficit.

"These hikes will further slash disposable family income and
come hot on the heels of the income erosion caused by inflation
in May," the institute said.

Consumers were concerned that protracted high inflation and
high interest rates with a volatile and weakening rupiah could
drag the country into a period of stagflation, adding to the risk
that the country may have to endure another costly bank
recapitalization program if interest rates continue to climb, the
institute said.

The institute said lingering doubts over the prospects of a
sustainable economic recovery in the second half of 2001 and the
inflation threat had unsettled consumers and caused their
sentiment on job availability over the next six months to drop to
98.1 from 103, the lowest in the history of the survey.

The job market concerns came amid deteriorating relations
between workers and entrepreneurs, and continued labor unrest in
the country, with a price-wage spiral emerging that would make
life even harder, it said.

"The country is now in a critical situation and facing threats
that could lead to the breakup of the nation," the institute
warned.

A combination of massive debts, a crumbling rupiah and rising
interest rates all threatened to destroy the chances of recovery,
even if there were political stability, the institute said.

According to the survey's findings, consumers will opt to
reduce spending on durables over the next six months.

The number of respondents planning to cut spending on durables
rose to 77 percent in May from 73.5 percent in April, the
institute said.

"This reduction, which has already been apparent over the last
couple of months, will increase the likelihood of the economy
ending up with slower growth ahead," the institute concluded.
(03)