New deregulation may lead to high inflation

New deregulation may lead to high inflation

JAKARTA (JP): The government's new deregulatory measures
significantly easing restrictions for foreign investors may
encourage rapid development of investment projects that will in
turn lead to high inflation, an economist says.

"The new deregulation will likely cause a rush on land
acquisition and purchases of construction materials, thereby
pushing consumer prices higher," Dorodjatun Kuntjorojakti, an
economics lecturer at the University of Indonesia, told reporters
here yesterday.

He said after delivering a speech during a tourism workshop
that the new deregulation, which was announced by the government
last week, will encourage foreign investors to establish
industrial facilities in Indonesia.

The government, under Government Regulation No. 20/1994,
reduces the minimum equity holding for Indonesian partners in
foreign joint ventures, removes the compulsory divestment
requirements and allows foreign investors to get involved in the
development and management of infrastructure facilities.

Dorodjatun said the new deregulation is attractive enough to
encourage foreign investors to set up investment projects on
islands other than Java, where infrastructure facilities have not
been adequately developed.

"There will be large-scale projects, including those on
infrastructures, to be developed by foreign investors," he said.

He said the expected good response of investors towards the
new deregulation may support rapid expansion of the country's
economic activities.

"But we must be alert that too strong a response may cause
high inflation," he said.

The country's inflation during the first five months of this
year reached 4.47 percent, close to the maximum of five percent
that the government wants maintain within the year.

Airlines

Meanwhile, an airline executive said yesterday the new
government policy will help domestic airlines obtain fund
infusions for expansion, but on the other hand, may cause tighter
competition.

"The policy will indeed smooth domestic businessmen in getting
foreign investment," Secretary General of the Indonesian National
Air Carrier Association Benny Rungkat said.

However, he suggested a follow-up plan for the government.

"They should simplify bureaucratic procedures, especially at
local offices," he said. (icn)