No tire price deflation despite rupiah's surge

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)