Ministers to keep inflation, interest rates in check

Slamet Susanto and Urip Hudiono, The Jakarta Post, Yogyakarta/Jakarta

The newly appointed economics and finance ministers shall be focusing their attention on reviving Indonesia hard-gained macroeconomic stability, currently under serious threat amid high inflation and interest rates, while at the same time encouraging investment in order to boost growth and job creation.

Boediono, the soon-to-be installed Coordinating Minister for the Economy, acknowledged on Tuesday that current inflation and interest rates were too high, and that they posed a danger to the whole economy.

Widely credited for stabilizing the macro economy when serving as finance minister during the administration of president Megawati Soekarnoputri, Boediono said he would make tackling the problems of high inflation and interest rates among his priorities.

"I'm going to cooperate with the monetary authorities (Bank Indonesia) to determine ways to deal with the problems (of high inflation and interest rates)," he said.

Inflation was at a six-year high as of November at 17.17 percent -- a multiplier effect from the government's move in increasing domestic fuel prices in October by an average of 126 percent.

Echoing Boediono was the new Minister of Finance Sri Mulyani Indrawati, who said in Jakarta that her focus would be to regain macroeconomic stability by managing fiscal policy in a "more prudent way".

"My priority is to maintain macroeconomic stability ... while also promoting investment for higher economic growth, poverty eradication and job creation," Sri Mulyani said.

Sri Mulyani and Boediono entered the Cabinet as part of a reshuffle announced a day earlier by President Susilo Bambang Yudhoyono, a move designed to improve the Cabinet's economic team that has come under fire in recent months.

Sri Mulyani was previously State Minister for National Development Planning.

Sri Mulyani admitted the current high inflation environment would eventually slow down economic growth for this year and next, especially when investment was yet to pick up speed as expected.

"If we can record investment growth of 10-12 percent next year, that may help to boost GDP growth to close to 6 percent," Sri Mulyani said.

The figure is lower than the official government target for next year's economic growth of 6.2 percent.

To achieve 6.2 percent growth next year, Sri Mulyani added, expansion in domestic consumption must be kept above 3.5 percent.

The slowing economy was also apparent this year, with the economy now expected to grow by 5.5 percent, slower than the official target of 6 percent.

The central bank, in a move to help curb inflation, on Tuesday hiked its key interest rate by 50 basis points from 12.25 percent to 12.75 percent, the sixth increase since July.

High interest rates are posing a problem for the economy as the cost of lending -- one major source of funding for business activity -- is becoming more expensive.