Indef predicts higher inflation, slower growth

Indef predicts higher inflation, slower growth

The Jakarta Post, Jakarta

The increases in the prices of fuel products, electricity and
telephone charges will boost inflation to around 11.8 percent
this year, and slow economic growth to 3.1 percent, according to
the Institute for Development of Economics and Finance (Indef), a
Jakarta-based private think-tank.

Indef economist Iman Sugema said on Tuesday that the
simultaneous price increases would drive up prices of goods and
services much higher than initially projected.

He was quoted by detik.com as saying that the think-tank
initially projected this year's inflation to reach 9.7 percent,
compared to the government's target of 9 percent.

Indef has been a strong critic of the utility price hikes
policy, launched earlier this month in a bid to cut expensive
government subsidies and help troubled state-owned utilities.
The think-tank said the timing of the policy was not appropriate
considering the weak economic condition of the people.

The much higher inflation would cut into the purchasing power
of the people and put a brake on domestic consumption, which has
been the main driver of economic growth during the past couple of
years.

Indef said the utility price hikes would have a negative
impact on economic growth this year.

It previously forecast growth to reach 3.4 percent, but had
revised the forecast down to between 2.8 percent and 3.1 percent.

The government initially projected growth this year to reach 5
percent, but after the Oct. 12 Bali bombings had cut the forecast
to 4 percent.

Indef said the stronger inflation and slower economic growth
would hamper efforts to reduce the number of poor in the country
of more than 210 million people.

The number of poor in 2002, according to official figures, is
17 percent. The government aims to reduce it to 15 percent this
year.

But Indef said the greater economic hardships caused by the
price rises would only lower the number of poor people to about
16.4 percent this year.

Meanwhile, another Indef economist, Aviliani, said stronger
inflation would limit room for the central bank to further reduce
its benchmark interest rate to below 13 percent.

She said this would mean lending rates remained expensive for
the real sector.