WORLD RECESSION BLAMED FOR BASIC COMMODITY PRICE HIKES

By Andi Abdussalam

Jakarta, Jan 26 (ANTARA) - Indonesian consumers are 'crying' over the sky-rocketing of principal commodity prices at home amid warnings by observers that a world economic recession this year will affect many parts of the world, including Indonesia.

        The prices of basic commodities such as rice, wheat and soybean have been on the rise over the past few months. The price of rice, for example, rose by 6-10 percent, wheat flour by 50 percent and soybean by 100 percent in recent months.

        The soybean price spiral sparked protests from 3,000 'tempe' (fermented soybean cake) producers who held a rally outside the presidential palace last week.

        "The increase in the prices of cereals is expected to continue throughout this year," Econit Advisory Group econmist Rasyad A. Parinduri said.

        The price increases are attributed to the world economic recession. Eeconomic turbulences have affected the world as a result of the United States subprime mortgage and European financial crises and are causing economic uncertainties.

        Besides, global crude oil prices which on the spot market had many times hit a record high of US$90 per barrel, or higher than the average oil price of US$72 per barrel last year, have also contributed to the world economic uncertainties.

        "A US economic crisis will directly or indirectly have a big impact on the Indonesian economy," Sofyan Wanandi, chairman of the Indonesian Businessmen's Association (Apindo), said.

        According to President Susilo Bambang Yudhoyono, the rising prices of some commodities like soybean, cooking oil and wheat were caused by global economic recession which had led to inflated world food prices.

        The prices of staples, particularly cereals, at the end of 2007, increased drastically while global food stocks dropped to a 25-year record low, he said.

        "Increases in the prices of some commodities do not only happen in Indonesia but also in other countries in the world as a result of global economic recession," the president said.

        The world was facing a crisis in its capital markets which had the potential of triggering a global economic recession. "At least 6.3 billion of the world's population is confronted by food resilience problems. Of the total, around 800 million, most of them are children, can not sleep well because they have not eaten enough," the president said.

        Not only that some food crops were currently being used to make biofuel. This condition has also brought about inflation in world food prices this year and in years to come.

        "What is happening in Indonesia is not only our mistake as it also occurs in other countries in the world," Yudhoyono said.

        Apart from whether it was caused by external or internal factor, the increase in commodity prices is a bullet for government critics.

        Taufik Kiemas, chairman of the Indonesian Democracy Party-Struggle (PDIP)'s advisory board, for example said that President Susilo Bambang Yudhoyono's economic team which was once touted as the "dream team" has failed to maintain the country's food stability.

        "At the beginning, the composition of the president's cabinet was seen as spectacular and referred to as the 'dream team' as if they were able to contain price hikes," Taufik said.

        "But what is happening now is the opposite: basic commodity and food prices are going up. The situation is no longer in accordance with the president's promises. He once said prices would not increase," Taufik said referring to the commodities whose prices had risen since early this month such as soybean, cooking oil, rice, wheat flour, animal feed and chicken.

        The prices of building materials such as cement, sand, iron and zinc were also on the rise. This will in term boost the inflation rates which in the last two years have been maintained at a lower level.

        Indonesia's inflation rate in 2007 was recorded at 6.59 percent, almost the same as 2006 when it stood at 6.60 percent.

        Early this year the government and the central bank set the inflation rate targets of 5, 4.5 and 4, plus and minus 1, percent for 2008, 2009 and 2010 respectively.

        But with increases in the prices of commodities at home, Indonesia's inflation rate this year is expected to be higher than in 2007.

        "We predict the 2008 inflation rate will be higher as the continuation of the previous trends," Anton Gunawan, an economist with Citibank.

        Inflation driven by an increase in the prices of food particularly basic necessaries will become a serious problem in 2008 and lower the purchasing power of the vast majority of the Indonesian people, according to Rasyad A. Parinduri of the Econit. (T.A014/A/HAJM/A/E002) (T.A014/A/A014/A/E002) 26-01-2008 23:09:59