Inflation up but economic growth 'will bear fruit', says economic minister

Inflation up but economic growth 'will bear fruit', says economic minister

Urip Hudiono, The Jakarta Post, Jakarta

After nearly 13 months on the job, chief economic minister
Aburizal Bakrie acknowledged the government's inability to reduce
unemployment or keep inflation in check.

However, the Coordinating Minister for the Economy defended
the Cabinet's fuel policy, which has been blamed for the
inflation, saying it would be better for the economy's future. He
also pointed to the government's success in being able to
maintain growth and attract foreign direct investment (FDI) amid
the tsunami disaster and the surge in global oil prices.

Likening the fuel price hikes to a surgery to remove a tumor,
Aburizal said the process was always going to inflict pain on
Indonesia's economy, but was necessary as a genuine cure for its
chronic ailments.

"The pain from the surgery and its healing process will be
felt until next year, but we will hopefully bear the fruits of a
healthier economy by 2007," he said on Monday, during a press
conference held to present the administration's economic progress
in its first year.

Although the fuel price increases will continue to push
inflation up and make growth in Indonesia's consumption-driven
economy more difficult, Aburizal said he was optimistic that the
situation would begin to abate by the end of this year.

"We can see that the economy is still going to end up growing
by 5.8 percent this year, while (the monthly) inflation will also
ease down to between 7 percent and 8 percent in November," he
predicted.

The government had forecast economic growth to be at 6 percent
with an inflation rate of 8.6 percent for the year.

But inflation reached a year-on-year 17.89 percent in October,
after the government cut fuel subsidies and approximately doubled
gasoline and diesel prices and tripled the price of kerosene in a
bid to rescue the budget from soaring global oil prices.
Inflation also shot up to 8.81 percent in March, after the year's
first fuel price hike by an average of 29 percent.

The rising inflation and a weakening rupiah has forced the
central bank to continuously raise its key interest rate, which
is currently at 12.25 percent. Although the rupiah has since
stabilized, it is still the worst performer in Asia, having
depreciated by 8.9 percent so far this year. The higher rates
have also made both consumer and commercial loans costlier,
hurting overall economic activity.

As a consequence, the economy has slowed down for the second
consecutive quarter, expanding by just 5.54 percent during this
year's second quarter, down from 6.19 percent in the first
quarter.

The government's economic policies have upset some pundits,
who have called for some Cabinet changes; particularly the
economic team. President Susilo Bambang Yudhoyono is expected to
announce any changes that may be made prior to his departure to
the Asia Pacific Economic Cooperation summit in Busan, South
Korea, later this week.

The economic slowdown has resulted in a rise in unemployment,
which the Central Statistics Agency reported as rising by 1.3
million from August to October, in contrast to the declining
trend from 1.1 million in 2001 to 431,000 in 2004.

The government admitted in the report that the recent growth
has not been enough to create enough new jobs, but argued that
the past decline in the unemployment rate was attributed to a
decrease in job-seekers.

Meanwhile, in terms of FDI, Aburizal emphasized that FDI had
reached US$7.64 billion during the first nine months of the year,
more than double that of the same period last year. He pointed to
Suzuki's decision to make Indonesia its regional production base,
and the acquisitions of Sampoerna by Philip Morris and LippoBank
by Khazanah Malaysia as key success stories. Exports have also
grown by 29.3 percent during the same period.