Market distortions, offshore borrowing may boost inflation
Market distortions, offshore borrowing may boost inflation
JAKARTA (JP): Experts warned that market distortions and
uncontrolled inflows of private offshore borrowing could send the
country's inflation rate higher this year.
Laksamana Sukardi, chairman of the Reform Consulting
Institute, forecasted over the weekend that private foreign
borrowing will increase again this year as the result of the
government's measures in tightening local bank lending.
In its drive to curb inflation, the government targets that
the credits extended by the country's commercial banks will grow
by only 16 percent this year, down from last year's target of 19
percent.
Laksamana noted that large private companies no more use banks
and non-bank financial institutions to seek funds abroad. Instead
they go straight to offshore capital centers.
Unlike banks and financial institutions, the companies are out
of the central bank's touch. They have direct market access and
are free to secure offshore borrowing as much as they want,
Laksamana said.
"Besides, they are often larger and more bona fide than banks
and finance institutions," Laksamana told The Jakarta Post over
the weekend.
Concurring with Laksamana, Sri Edi Swasono, an adviser to the
chairman of the National Development Planning Board, noted that
such inflows of offshore borrowing will give additional
inflationary pressures.
He predicted that the inflation rate will likely increase by
one point to over 9 percent this year from the 8.64 percent
recorded last year.
In a press briefing on the 1996/1997 budget plan last week,
Bank Indonesia Governor J. Soedradjad Djiwandono revealed that
private offshore loans signed from January to October 1995
reached US$6.04 billion, up sharply from $2.3 billion signed
during the same period of 1994.
"However, that amount of money is still contained in signed
agreements. We do not expect it all to be disbursed," Soedradjad
said.
Instruments
He noted that the central bank has tried hard to curb private
offshore loans through a number of instruments, including
prudential regulations for banks and non-bank financial
institutions.
"We do not ban anyone from seeking offshore loans. But, we
just want, if you borrow, please be careful and understand the
risks.
"The government also raises borrowing, but we take only
concessional loans. I understand that the private sector cannot
get such concessional loans, but at least they can reduce the
risks.
"So, whenever offered an offshore loan, don't just grab it,"
Soedradjad suggested.
In the same briefing, Mar'ie explained that the 1996/1997
budget plan, proposed by President Soeharto to the House of
Representatives last week, will not significantly contribute to
inflation as it is contractive in nature.
Although the budget plan increases by 16 percent in spending
to Rp 90.6 trillion (US$39.4 billion), most of the spending, or
some 60 percent, will be financed by tax revenues. Therefore,
there will be no significant increase of money in circulation.
The government targets that the money supply, both in narrow
and broad terms, will grow by 17 percent this year, as compared
to 20 percent last year.
Laksamana agreed with Mar'ie's view that the next fiscal
year's budget will not give significant inflationary pressures.
However, he warned that the private sector, which increasingly
controls the country's economy, can raise the inflation rate even
higher.
Much more, the government still tolerates market distortions
such as monopolies, oligopolies and cartel-like practices by the
private sector, he said.
"We can learn from last year's experience. The government's
decision to raise cement prices, for example, raises prices of
other products. That's a de facto power. The monetary authority
has exerted all efforts to curb inflation, but there are cartel
holders. So what?" Laksamana said.
In support of Laksamana, legislator Tadjudin Noer Said of the
Golkar faction, blamed the government for its failure to give
assurances to the public on the movement of the inflationary
factors it controls, especially the government-set prices of
certain products.
"Any time we deliberate the budget plan, we never know whether
there will be increases in government-controlled prices which
have direct influence on inflation. Like what happens now, we
never know if fuel prices will be raised or not," Tadjudin said.
The chief of the Central Bureau of Statistics, Sugito Suwito,
was quoted Saturday by Kompas daily as saying that government
levies -- both legal and illegal -- on industrial companies have
also raised inflation rates because the companies pass the costs
onto buyers by increasing prices.
Long chains of trade caused by trade regulations have also
raised prices, he said. (rid)