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)