'Inflation could exceed target'

'Inflation could exceed target'

The Jakarta Post, Jakarta

Minister of Finance Boediono said on Thursday that full-year
inflation could reach 7 percent, exceeding the government's
target, mainly due to the fall of the rupiah against the U.S.
dollar.

He said the drop in the value of the rupiah against the U.S.
dollar had pushed up the price of goods because imported raw
materials were now more expensive.

The government has projected inflation this year at 6.5
percent. It also assumed an average exchange rate of Rp 8,600
against the U.S. dollar.

But the rupiah has been under pressure due to a combination of
political jitters at home during the current election year and
rising U.S. interest rates, which have prompted investors to
switch to dollar-based assets.

The rupiah has declined by about 6 percent since the start of
the year. The rupiah ended Thursday flat at Rp 8,960 as most
players remained on the sidelines ahead of the second round of
the presidential election on Sept. 20.

Inflation over the past two months has been accelerating. In
June, the consumer price index rose to 6.8 percent on an annual
basis as prices of most goods and services increased amid the
falling rupiah.

The stronger inflationary pressure could force the central
bank to increase its benchmark interest rate, a move that would
eventually add to the burden on the state budget in servicing the
government's huge domestic debt.

The higher rate would in turn also make it more difficult for
banks to extend loans to the corporate sector.

Bank Indonesia has been determined to control inflation, seen
as one of the key conditions for accelerating the economic
recovery. The country, in the wake of the late 1990s financial
crisis, suffered from hyperinflation.

Elsewhere, Boediono said consistency and nondiscrimination in
government policies were key factors in attracting new direct
investment.

"What are needed are consistent and nondiscriminative
policies. This will help reduce the risk of investing in
Indonesia," he said.

He was commenting on an earlier report from the Investment
Coordinating Board that approved foreign direct investment
declined by 34 percent to about US$3.05 billion in the fist half
of this year compared to the same period last year.

Boediono also said further reform of the judicial, tax and
excise sectors, as well as improving good governance, were
equally important for improving the investment climate.