Sumitro warns of higher inflation, worsening deficit

Sumitro warns of higher inflation, worsening deficit

JAKARTA (JP): Senior economist Sumitro Djojohadikusumo yesterday warned that the increasing inflation rate and deepening current account deficit may endanger the economy if the government does not take immediate measures.

"The government should limit its spending, increase its revenues and reduce or delay investment expansion of state-owned companies," Sumitro said at the annual meeting of the Federation of Civil Servant Cooperatives here yesterday.

He said that the inflation rate will likely continue to reach about 8.5 percent to 9 percent in the coming three years, while the deficit in the country's balance of payments will have a tendency to surge.

According to the Central Bureau of Statistic, the inflation rate during the first 11 months of this year reached 8.28 percent, far higher than the annual 5 percent targeted by the government under its five year development plan.

The inflation rate was recorded at 9.77 percent in 1993 and 9.24 percent in 1994.

Sumitro said that Indonesia's current account deficit, which increased from US$2 billion in 1993 to $3.4 billion in 1994, will probably soar to $6 billion this year and in each of the coming few years.

The government, under its budget plan, aims to limit the country's current account deficit at $4 billion this 1995-1996 fiscal year.

"The government, therefore, should continue its tight money policy, which aims to limit the broad-term money supply," said Sumitro, who was a minister in various cabinets during the reign of the late President Sukarno and President Soeharto.

According to Bank Indonesia, the broad-term money supply -- comprised of currencies, demand deposits and quasi money -- increased by 20.18 percent from Rp 145.2 trillion (US$63.1 billion at current rate) as of the end of 1993 to Rp 174.51 trillion as of the end of 1994 and by another 15.7 percent to Rp 202.08 trillion as of August.

Sumitro said that because the deepening current account deficit was caused mainly by the faster growth of imports than exports, the government should immediately take deregulatory measures related to the production and distribution of goods, rather than focusing its measures on monetary policies.

Data at the Central Bureau of Statistics show that Indonesia's exports grew by only 8.7 percent to $40.05 billion in 1994 from $36.82 billion in 1993, while imports increased by 12.9 percent to $31.98 billion from $28.32 million. During the first seven months of this year, the exports rose 14.1 percent to $25.01 billion from $21.92 billion in the same period of 1994, but the imports shot up by 30.6 percent to $22.73 billion from $17.39 billion.

"The solution now depends on the government's political will to solve the problem," Sumitro said.(kod)