Prices to remain stable in May: BPS

JAKARTA (JP): Prices of goods and services remained stable in the first three weeks of May despite election jitters, raising hopes that inflation for the month would be flat.

Central Bureau of Statistics (BPS) deputy chairman Kusmadi Saleh said on Monday that the stable prices were attributable to various factors, particularly sufficient supply and undisturbed distribution of basic commodities throughout the election campaigning activities and a stable rupiah.

"There has also been no hoarding behavior," he told reporters after a meeting with senior government officials at the National Development Planning Board office.

"If this trend continues, inflation in May will be zero. But we still have another significant week ahead. Prices can suddenly soar if things go wrong," he said.

Indonesia is to hold a general election on June 7, which will be the country's first multiparty election after more than 32 years under the authoritarian rule of former president Soeharto.

Some people had earlier predicted that the campaign period, which started on May 19, would be violent, thus disrupting the distribution of basic commodities and triggering the hoarding of consumables. This could weaken the rupiah.

These worries did not materialize during the first three weeks of May.

Kusmadi pointed out that the rupiah was stable at around Rp 8,000 to the U.S. dollar.

He also said that a sufficient stock of rice from the successful harvest in the March to May season, coupled with the rice import contract, was a significant factor in maintaining a low inflation level.

Indonesia managed to record deflation of 0.18 percent and 0.68 percent respectively in March and April.

The government has recently revised its inflation target for the 1999/2000 fiscal year from 17 percent to 10 percent, following the improvements in the country's macroeconomic picture.

Asked if the new inflation target was attainable, Kusmadi said: "I can't really say because anything can happen, particularly in the political arena between now and November."

The central bank has been allowing domestic interest rates to continue to go down during the past couple of months, on the back of a lower inflation forecasts and a stabilizing rupiah.

Bank Indonesia last week allowed the interest rate of its benchmark one-month SBI promissory note to decline by more than two percentage points, to slightly over 27 percent from 29.99 percent.

BI will arrange a weekly auction of SBI notes on Wednesday.

The government expects the lower domestic interest rates to be helpful in efforts to restructure the country's ailing banking sector and rebuild the battered real sector.

A lower interest rate would also help rebuild confidence in the economy.

Domestic interest rates were more than 70 percent in August last year when the economic crisis heightened. (rei)