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)