President aims for inflation below 10%

President aims for inflation below 10%

Agencies, Jakarta

President Susilo Bambang Yudhoyono said the government will aim at better coordination with the central bank so that fiscal and monetary policies will help bring inflation below 10 percent by the end of 2006.

"The government is trying to avoid a second round of inflation," Yudhoyono told reporters at an informal gathering to mark the end of the Muslim fasting month of Ramadhan.

"We will pay attention to the purchasing power of all Indonesians. We will take measures to stem inflation."

Inflation jumped to a six-year high of 17.9 percent in October as the government sharply cut fuel subsidies, boosting retail prices.

The central bank responded last week to that inflationary pressure by raising the benchmark Bank Indonesia rate 125 basis points to 12.25 percent, its highest level since February 2003.

Susilo indicated the inflationary jump was a strictly short- term phenomenon.

"Clearly, inflation is not in line with our hopes...(but) our hope is that by the end of 2006 it will return to single figures," he said, without elaborating.

The rate rise on Nov. 1 was the largest since the Asian financial crisis in the late 1990s.

The impact of the tightening will make it difficult for the government to achieve its economic growth forecast of 6.0 percent in 2005 and 6.2 percent in 2006.

Those projections outpace the economic expansion of 5.4 percent in 2004.

Susilo however, said other macroeconomic data indicated a strengthening of Indonesia's economy.

"The happier thing is that growth which was once driven by consumption is now being driven by investment and exports...a good sign that the components of our economy are getting stronger," he said.

Indonesia's exports rose 4.9 percent on-month in September to US$7.38 billion, while actual foreign direct investment surged to $7.64 billion in the first nine months of 2005 from $2.94 billion a year ago.