Double digits loom as inflation rate rises

Double digits loom as inflation rate rises

JAKARTA (JP): The inflation rate is likely to approach the psychological barrier of 10 percent this year in spite of the government's pledge to keep it below, a senior economist says.

Anwar Nasution, speaking in a one-day seminar on the state budget, said on Saturday that this year's inflation rate will likely be higher than last year's level of 9.24 percent.

The inflation rate reached 9.77 percent in 1993.

Minister of Finance Mar'ie Muhammad told the House of Representatives here last Friday that the government will make concerted efforts to keep the inflation rate at a maximum of five percent in the coming years in order to improve the competitiveness of Indonesia's exports.

"This year's higher inflation rate will be made possible by increases in salaries of civil servants and members of the Armed Forces and the obligatory rises of minimum wages as well as hikes in electricity and telephone billing rates," Nasution told the seminar, which was organized by the Jakarta-based Indonesian Managers Club.

The government announced a 10 percent increase in the salaries of lower-ranking civil servants and members of the Armed Forces beginning in January and in April for the higher ranks. In addition, private employers are required to raise the minimum wages of their employees by a range between 11 percent and 35 percent, depending on their locations, by April 1.

Nasution said that the rise of interest rates on banking credits, the marking up of project values by investors, the depreciation of the rupiah against major currencies and the expansion of money supply will also push up the inflation rate this year.

Triggered by substantial increases in U.S. interest rates in 1994, Indonesian commercial banks have been forced to raise their interest rates by about two points in the past few months.

Nasution explained that increases in salaries and wages will not only increase the demand for goods and services, but also push up their prices.

"Unfortunately, the increasing demand is not offset by the government's deregulatory measures in the real sectors and rapid development of infrastructure facilities, which can accelerate the distribution of goods and exports," he added.

He also cautioned that increasing interest rates on credits, now approaching 20 percent per annum, might in turn affect industrial expansion.

Like Nasution, senior economist Sumitro Djojohadikusumo predicted last December that the country's inflation rate will still be running at a high level in the coming years. He predicted an inflation rate ranging between 8.5 percent and nine percent per annum until the end of the current Sixth Five Year Development Plan (Repelita VI) period.(fhp)