Rising yen could drive inflation rate up: Experts
Rising yen could drive inflation rate up: Experts
JAKARTA (JP): The rise of Japanese yen against the U.S. dollar
is likely to mean another blow to the Indonesian economy, as
import costs escalate and inflation rates climb while government
resources are squeezed, local experts said yesterday.
"Since most of our imports from Japan are capital goods, we
can expect, at least in the short term, the emergence of cost-
push factors that will make the inflation rate creep upwards,"
Pande Radja Silalahi, an economist with the Center of Strategic
and International Studies, told The Jakarta Post yesterday.
Rijanto Sastroatmodjo, a local banking expert, was quoted by
Antara yesterday as saying that the appreciation of the Japanese
currency would "create import inflation".
Official figures show that imports from Japan during the first
ten months of last year reached about US$6.20 billion or 23.9
percent of the country's total imports.
Thanks to the oil and gas sector, Jakarta has enjoyed a trade
surplus with Tokyo for several years.
However, a recent study by U.S. merchant bank Salomon Brothers
said that the rising yen "may well decrease the portion of the
trade surplus which does not reflect U.S. dollar-priced goods,
such as oil."
Indonesia's inflation rate for the 1994 calendar year was
checked at 9.24 percent, slightly lower than the 9.77 percent
recorded in 1993.
Between January and March this year, the inflation rate was
recorded at 3.04 percent, as compared with 3.71 during the
corresponding period of last year.
Various rising costs and a likely repeat of last year's poor
rice harvest have led some analysts to believe that Indonesia's
inflation rate may be higher this year.
The U.S.-based investment house J.P. Morgan, for example, has
made three different forecasts, or scenarios, for Indonesia in
1995.
Morgan's lowest forecast of this year's overall inflation rate
is 10.5 percent, while the other scenarios predict rates of 12
and 13 percent respectively. These projections do not take
account of the yen appreciation factor.
Tokyo
According to reports from the Tokyo foreign exchange market
yesterday, the dollar gained ground on news that the U.S. trade
deficit with Japan had shrunk in February.
The greenback was quoted at 81.60-63 yen in late afternoon
trading in Tokyo, after hitting a new low of 79.75 yen early on
Wednesday.
Pande said yesterday that, since the yen is an external
factor, there is little that the Indonesian government can do
about the situation.
"It is unfortunate that an external factor has gone against
the Indonesian economy in such a strong way," he said.
"We can only hope that our importers have done some hedging in
relation to this currently problem," he said.
However, an official of the Indonesian Importers Association
warned that some of their members might not be able to come to
terms with the escalating yen.
"A big chunk of Indonesian imports from Japan go to our
automotive sector, which is dependent on Tokyo for its spare
parts supply. However, I doubt that sector has sufficient
flexibility to turn to other suppliers," Amirudin Saud, chairman
of the association, told the Post yesterday.
The Indonesia Automotive Industry Association was not
available for comment yesterday.
Optimism
The fears of rising inflation brought about by the rising yen
were not, however, shared by David Chang, director of research at
PT Sigma Batara Securities.
"We have to note that most of our Japanese imports do not
constitute a significant part of the consumer price index basket,
which is the basis for forecasting and measuring inflation," he
told the Post by telephone yesterday.
"The real worry, in relation to inflation, is not Japanese
imports, but things like cement prices, which have been climbing
recently," he said, adding that he was optimistic that the
inflation rate this year will stay within single digits.
Chang was also dismissive of recent expressions of great
anxiety concerning the effects on Indonesia's foreign debt burden
of the falling dollar.
According to the Ministry of Finance, Indonesia's foreign
debts stood at $87.6 billion as of last December, a majority of
which were long-term public debts. About 40 percent of the
government's loans were denominated in yen.
"Look, Indonesia has never rescheduled its loans since 1967
and it has a very solid political leadership which gives clear
directions regarding the debt problem," he said, adding that the
rising yen might even encourage Indonesia's exports and the
arrival of foreign direct investment.
Chang pointed to Standard & Poor's recent decision to upgrade
its long-term foreign currency rating of Indonesia to triple B
(BBB) from triple B minus (BBB-). (hdj)