Government urged to ease its grip on inflation
Government urged to ease its grip on inflation
JAKARTA (JP): The government should start easing its grip on
consumer price index components because inflation has started to
drop, experts said yesterday.
Legislator Tadjudin Noer Said of the House Budgetary
Commission and economist Mari E. Pangestu of the Centre for
Strategic and International Studies agreed that the government's
sound monetary and fiscal management had helped reduce inflation
for the last fiscal year.
"We have to commend the government for such a good
achievement, although it is still above the target of 5 percent
per annum for the current Five Year Development Plan," Tadjudin
said yesterday.
The government reported earlier that inflation in the last
fiscal year to March 31 was 5.17 percent, the lowest since the
1985/1986 fiscal year.
But Tadjudin said the government needed to review the
achievement because it might result from an economic slump rather
than from comprehensive anti-inflation measures.
The 5.17 percent inflation rate did not represent real
inflation because Indonesia's consumer price index covered only
basic needs, most of which are controlled by the government, he
said.
"The government's interventions exist in most components of
our consumer price index. Just take the prices of fuel, rice and
the other nine basic commodities. The government has interference
power over them through subsidies," Tadjudin said.
He said although some subsidies, like those for fertilizers
and fuel, were accounted for in the state budget, many more were
not reported in the budget.
The unreported subsidies include those for stabilizing the
prices of rice, sugar, flour, and cooking oil, which are managed
by the National Logistic Agency, he said.
Bank Indonesia, the central bank, often disburses subsidized
liquidity credits to the agency for price stabilization programs.
"We are in the dark about those subsidies. But I think if the
government removed those subsidies, inflation would have been
higher than that officially recorded. Therefore, the government
needs to relax its control gradually to achieve sustainable low
inflation in the future," Tadjudin said.
Mari warned that the government might loosen control over fuel
prices after the May general election which would cause inflation
to rise.
She predicted inflation would increase after the general
elections because most investors would start implementing their
investment plans, which had been put on hold until after the
election.
"Investment booms like this will cause a specific dilemma for
Bank Indonesia, especially in managing the level of bank interest
rates," Mari was quoted by Antara as saying.
Although the country posted relatively low inflation last
fiscal year, Mari predicted interest rates would remain high
because the central bank would impose a tight-monetary policy.
Deposit rates could decline further from about 15 percent a
year, but lending rates would remain high at about 19 percent to
20 percent a year, she said.
"Bank Indonesia reckons that any tinkering with interest rates
will directly influence the national banking system," she said.
(rid)