Finance minister upbeat on inflation outlook

JAKARTA (JP): Despite the potential for turmoil around the upcoming general election, Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita is optimistic that inflation in the 1999/2000 fiscal year will be about 10 percent, far below the government's initial target of 17 percent.

He said on Monday his prediction was based on the strengthening of the rupiah and the declining trend in prices over the past couple of months.

"I'm optimistic that our inflation forecast of 17 percent will be met. In fact, it could move closer in the direction of 10 percent," he told reporters before a Cabinet meeting at the Presidential Palace.

The government assumed an inflation rate of 17 percent for the 1999/2000 fiscal year, which started in April. Inflation reached 77.63 percent over the 1998 calender year.

The Central Bureau of Statistics (BPS) reported on Monday that April inflation was negative 0.68 percent, compared to deflation of 0.18 percent in March.

BPS chief Suwito Sugito said the deflation was due to declining prices in raw food products (-2.33 percent), processed foods, beverages, cigarettes, and tobacco (-0.38 percent), clothing (-0.48 percent), education, recreation, and sports (0.01 percent), and transport and communications (0.05 percent).

"Although prices of several goods increased during the last week of the month, prices of most goods throughout April declined significantly, particularly prices of important commodities including rice, red chili, red onions, sugar, chickens, fresh fish," Suwito said, adding that these were categorized as the basic commodities of the people.

He said the inflation rate in the January to April period was recorded at 3.37 percent, while the year up until April was 37.97 percent.

BPS said price increases in April were only experienced by the housing (0.69 percent), and health (0.36 percent) sectors.

Ginandjar was optimistic that inflation in May would continue in the negative, although some feared that prices might go up in the run-up to the country's June 7 general election.

"Inflation in April was negative, March was also negative, so we hope May will also be negative," Ginandjar said.

Minister of Trade and Industry Rahardi Ramelan played down worries of possible food hoarding before the general election, which would trigger price increases.

Many fear that escalating political tension before and after the June election could spark riots. The commotion would not only affect the distribution of basic commodities, but also prompt traders to close their shops.

Rahardi said that as long as the campaigning activities were done far away from markets and major distribution highways, the supply of food would not be disrupted.

"We have enough supplies... there's no problem with (the supply of) rice, cooking oil, and sugar," he said.

Stronger rupiah

Ginandjar was optimistic that the exchange rate of the rupiah against the U.S. dollar would be close to the 7,000 level, compared to the government target of 7,500 in the current fiscal year.

He pointed out the rupiah was strengthening toward the 7,900 level, compared to nearly Rp 9,500 to the dollar in March.

"It's not because of government intervention. The strengthening (of the rupiah) was driven by various factors including the launching of the bank recapitalization program, the start of the restructuring of the real sector, and the declining trend in inflation," Ginandjar said.

The government launched major bank restructuring measures, including the closing of 38 private banks, acquisition of seven private banks, and the recapitalization of nine private banks. Since the measures, the rupiah has been strengthening.

"I'm optimistic that the rupiah will return to the 7,000 level," Ginandjar said.

The rupiah continued strengthening against the U.S. dollar on Monday, breaking the psychological barrier of 8,000 on reports of improvements to the country's economic indicators and the inflow of foreign funds.

Foreign exchange dealers said the rupiah rose to 7,960 against the dollar in the spot market before the lunch break, from 8,245 in late trading on Friday.

"Many offshore fund managers, mostly from Singapore, sold their dollars for rupiah before the lunch break," a dealer at publicly listed Bank Bali said. He said the dollar selling spree was also joined by local traders, including state banks, before the close of trading, putting more pressure on the greenback.

The rupiah remained stable at between 7,965 and 7,975 against the U.S. dollar in the afternoon, before ending the day at 7,940. (rei/prb/cst)