No tire price deflation despite rupiah's surge

JAKARTA (JP): Tire prices are likely to stay inflated despite the rupiah's surge in the last month, the association of Indonesian automotive tire manufacturers (APBI) has estimated.

Association chairman Azis Pane said the surge in the rupiah against the U.S. dollar would unlikely affect the prices of tires in the short-term.

"It will be difficult to cut prices at the moment because the rupiah, which has gained more than 40 percent since August, is still volatile," he told The Jakarta Post in an interview on Friday.

He said that the current prices would stay at least until next year.

Financial analysts have said the turbulent political climate ahead of the Special Session of the People's Consultative Assembly (MPR) next week could further drag down the rupiah.

Antigovernment rallies are taking place almost every day in the country's major cities. Protesters are rejecting the MPR Special Session on the grounds that the existing MPR members, mostly appointed during the Soeharto era, do not have any legitimacy to represent the people.

"We have appealed to our members not to cut tire prices hurriedly just because of the rise of the rupiah," Azis said.

He said prices of tire products were pegged at Rp 10,000 to the dollar, much lower than the rupiah's value of between 7,000 and 8,000 in the last two weeks.

Manufacturers should be very wary about changing prices, he said, because once they had changed the prices they would have to maintain the new level for a certain of time.

"It is therefore difficult at present to cut prices when uncertainty over the rupiah remains," he added.

The rupiah plunged to its lowest level, of 17,000 against the greenback, in early January from its pre-crisis level of 2,500 in August 1997. It fluctuated to between 14,000 and 11,000 for several months before recovering to between 8,000 and 7,000 early last month.

But analysts believe political considerations will drag the currency down from its current level of 7,600.

Tire production has dropped significantly this year due to the slowdown in the automotive industry.

The association said that tire production for four-wheeled vehicles fell 15 percent to 12.10 million tires in the nine months to September from 14.21 million in the same period last year due to a drop in local demand.

Local producers have increased their exports to offset the fall in domestic demand. However, the increase in exports is still too small to match last year's production level.

The association said that tire exports (both for two-wheeled and four-wheeled vehicles) for the January-September period rose about 20 percent to 15.21 million from 12.51 million in the corresponding period of 1997.

But in terms of value the tire exports dropped to $187.41 million from $189.3 million in the same period due to lower prices in international markets.

Harry Kalisaran, another executive of the association, said that future of the Indonesian tire industry was not that promising, not only due to the global economic downturn but also due to market liberalization trends.

He feared that Indonesia would be flooded with imported tires when the free trade arrangements, both under the World Trade Organization (WTO) or the ASEAN Free Trade Area start coming into effect in 2003 as Indonesia would not have any mechanism to protect local producers against the influx of foreign-made products.

He said that unlike in Indonesia, other countries had adopted strict standards about importing tires from other countries and this had become a serious barrier for Indonesian tire exporters. (29)