Jakarta, Sept 2 (ANTARA) - Businesses and economic observers advised the government that it should launch market operations, control goods distribution and not to raise Bank Indonesia (BI)'s benchmark interest rate in an effort to offset inflation and basic necessary price hikes in the face of religious Idul Fitri, Idual Adha and Christmas holidays as well as new year.
As prices of essential food commodities in the current fasting month are on the rise, economic observer Aviliani forecast that inflation in September 2008 would reach about one percent, exceeding the August rate of 0.51 percent.
"Inflation will reach this level if the government is unable to control the increasing prices of goods and services," she said.
She said inflation was expected to be relatively high in the months ahead due to an expected surge by about 10-25 percent in basic necessaries' prices.
In order to curb the inflation, the Indonesian Chamber of Commerce and Industry (KADIN) called on the government to launch market operations. It was important for the government to control basic commodity prices so that speculators would not capitalize on high demand during the fasting month and in the runup to the Idul Fitry holidays.
"Although inflation in August declined to 0.51 percent from 1.37 percent in July, it will likely increase to about 25 percent in September," Bambang Soesatyo, chairman of KADIN's permanent committee for fiscal and monetary affairs, said.
He said the August inflation rate of 0.51 percent had not included price increases of basic necessaries and liquefied petroleum gas which had been on the upward trend since two weeks before the fasting month.
"KADIN hopes that the government and the monetary authorities will not let the seasonal inflation hikes take place as a routine matter in the face of the religious holiday festivities," he said.
However, according to economic observer Edwin Sinaga, the annual inflation rate which has reached 11.5 percent will prompt the Indonesian central bank (Bank Indonesia/BI) to once again raise its benchmark interest rate (BI Rate) which at present stands at 9.0 percent. BI recently raised its rate by 25 basis points from 8.75 to 9.0 percent.
"BI will once again raise its rate by 25 basis points to 9.25 percent in an effort to curb the upward trend in inflation which has exceeded the government's target of 11.2 percent," Edwin Sinaga said.
Director for macro-planning affairs at the National Development Planning Board (Bappenas), Bambang Prijambodo, said BI should maintain its benchmark interest rate at 9 percent while ascertaining whether a present easing in the upward trend in inflation will continue to take place.
"In essence, there is need to make sure the easing in the upward trend in the inflation rate will last before taking a decision to change the benchmark interest rate," he said. He was referring to the August inflation rate at 0.51 percent which declined from 1.37 percent a month earlier.
He said BI did not yet need to respond to the August inflation of 0.51 percent and the year-on-year inflation of 11.86 percent by raising or lowering its reference interest rate.
Therefore, Bambang Soesatyo suggested that the government conduct market operations. The government still had a chance to control the increase in the basic commodity and gas prices at the retail level by launching market operations.
"Market operations could eliminate the chance for speculators to raise prices at will," he added.
He said if the government was not able to curb the prices of basic commodities and gas which at present had reached Rp100,000 at the retail level in a number of cities outside Java, inflation would badly affect the national economy.
It seems, however, that market operations alone would not work effectively. Aviliani, who is an INDEF (Institute for Development of Economics and Finance) researcher said the government could take under control only the prices of four commodities through market operations, namely sugar, rice, cooking oil and wheat flour.
The government would be helpless with regard to the increase in the prices of other commodities because they were controlled by the market mechanism.
Therefore, she called on the government to control the distribution of goods. "There is a way to reduce the price increases, namely by supervising goods distribution. No matter how large the number of stocks, if their distribution is not controlled their prices will go up," she said.
She said gas for household needs, for example, if its distribution was not controlled, it would most likely become a trigger of inflation, even without a government decision to raise its price.
In connection with an estimate that inflation would reach 12 percent in 2008, Aviliani asked BI not to increase its benchmark interest rate.
"There is no need to offset inflation by raising the interest rate. This is for the sake of banking credit growth and the development of the infrastructure and plantation sectors," she added.
Yet, Edwin Sinaga saw positive points for BI to increase its rate. He said that the increase in the BI Rate was expected to encourage foreign investors to place their funds again in the Indonesian money markets.
"So far, many foreign investors have withdrawn their funds and invested their money in other markets which are more profitable," he added.(T.A014/A/HAJM/A/E002) Sept 2, 2008
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