Inflation rate expected to hit 8.5% this year

JAKARTA (JP): The Central Bureau of Statistics (BPS) expects Indonesia's inflation rate to reach 8.5 percent this calender year and 8.9 percent next year.

The agency attributed the high estimates to continued increases in demand for consumer products.

A BPS economic forecast for 1996 and 1997, made available yesterday, said the projected rates are not expected to affect confidence in the rupiah. Higher inflation is to come from increases in demand rather than slower growth on the supply side, the report said.

The government had planned to keep the inflation rate at 5 percent per annum in the current five year development period, ending in 1999. The target has yet to be achieved.

The inflation rate, for example, was recorded at 8.65 percent in 1995, down slightly from 9.24 percent in the previous year. In the January to July period of this year, the inflation rate was checked at 4.98 percent, down from 6.41 percent during the same period of last year.

According to BPS, government policies to fight inflation through fiscal and monetary measures have not been effective due to growth in short-term foreign funds through domestic equity and money markets.

"The increase in the inflow of foreign funds through the capital and money markets makes it difficult for the monetary authority to control the money supply," the bureau said.

Investment decline

It also reported an expected drop in the growth rate of foreign investment approvals to 15 percent both in 1996 and 1997, from 25 percent last year.

The projected declines in the value of foreign investment approvals were attributed to inconsistencies in the government's microeconomic policies. BPS did not elaborate.

Foreign investment approvals, according to the Investment Coordinating Board (BKPM), declined in value by 2.7 percent to $21 billion between January and July 15 this year from $27.2 billion in the same period of last year. Meanwhile, the value of domestic investment approvals rose 127 percent to Rp 70.6 trillion from Rp 31 trillion.

In 1995, foreign investment approvals rose 68 percent to $39.9 billion from $23.7 billion in 1994, while domestic investment approvals increased 30 percent to Rp 69.9 trillion from Rp 53.3 trillion.

BPS said that slower foreign investment growth would result in a decline in the aggregate growth of gross domestic capital to 7.67 percent in 1996 and 7.91 percent in 1997, compared to 8.4 percent in 1995.

It said that slower growth in foreign investment approvals would also slow domestic demand and the importation of consumer goods and services.

The actual growth rate of imported goods and services is expected to decline to 12 percent next year from 24 percent last year, BPS said. (hen)