Stronger monetary measures urged to curb inflation
Stronger monetary measures urged to curb inflation
JAKARTA (JP): The government should pursue stronger monetary
and fiscal measures to control inflation and create more
employment to prevent possible social chaos, University of
Indonesia economists said yesterday.
Anton H. Gunawan and Sri Mulyani Indrawati said the government
should simultaneously solve offshore debt problems, restore the
health of the banking sector and reduce various distortions in
the production sector to shore up the rupiah.
While speaking at a university symposium on "caring about the
future of Indonesia", they said monetary policy alone had lost
its effectiveness to control the inflation rate and strengthen
the rupiah.
"Monetary policies have become redundant during the current
crisis, so policies to control inflation should be more on the
fiscal side," Anton said in a paper he prepared jointly with Sri
Mulyani.
Sri was not at the meeting yesterday because she is performing
a pilgrimage to Mecca.
Anton predicted that efforts to control inflation by raising
interest rates to high levels would not be effective because
current inflation had been caused more by supply rather than
demand factors.
"One thing the government should understand is that the
current high inflation rate is not merely caused by high growth
of the money supply and economic liquidity.
"The high inflation stems more from supply factors, like
imported inflation, the stoppage of production processes and cuts
in distribution channels," Anton said
Fiscal measures to control inflation could be pursued by
subsidizing the importation of basic staples and maintaining fuel
subsidies for some time, he said.
Economist Ari Kuncoro agreed and said the government should
subsidize the import of raw materials for the production of basic
necessities, including medicines.
"However, all subsidies should be viewed as emergency
measures. They cannot be maintained for a medium or longer-term
period," Ari said.
"If they are maintained for any longer than that, it would
make the economy inefficient," he added.
The economists said the government did not have enough funds
for long-term subsidies because domestic income taxes would not
increase and could even decrease.
Anton suggested that the government transfer all of the
country's non-budgetary funds managed by various foundations
under President Soeharto to the state budget.
The government would have more resources to finance its
spending, especially on badly needed subsidies, he said.
He said the government could use the trillions of rupiah from
the non-budgetary funds to create more employment through a
social safety net scheme.
He proposed that the government allocate certain funds, like
those used to help undeveloped villages, to create employment.
The government should involve more non-governmental
organizations and local people in selecting and running the
projects to make them productive, Anton said.
"And most importantly, the decision making process and the use
of funds must be made as transparent and accountable as
possible," he said.
As for efforts to strengthen the rupiah, Anton suggested that
the government simultaneously solve offshore debt problems,
restore the health of the banking sector and reduce various
distortions in the production sector.
"Therefore, the essence of the International Monetary Fund
reform package should cover all three elements because all of the
three are vital to the strengthening of the rupiah," Anton said.
The rupiah has lost about 70 percent of its value against the
U.S. dollar since early July.
Anton warned that if the government again failed to implement
the reforms, confidence in the current administration would never
return.
He said the people had already been disappointed by rent-
seeking activities hidden behind the State Logistics Agency and
managed clove trading, which the government has recently tried to
defend in its negotiations with the IMF.
Goodwill from the government to abolish all practices of crony
capitalism is needed to win the hearts of the people to restore
confidence, he said. (rid)