[Peakoil] Indonesia

[Jenny Goldie]

Oil prices stoke Indonesian inflation
2005 Nov 03
Feedback Andrew Burrell   |   Jakarta

http://afr.com/premium/articles/2005/11/02/1130823270889.html 

Indonesia's economy is suffering worse than expected fallout from high
global oil prices, with inflation surging to a six-year high of almost
18 per cent and the central bank forced to raise interest rates for the
fifth time in two months.

Analysts said yesterday the latest negative developments confirm that
Indonesia would have great difficulty in reaching its economic growth
forecast of 6 per cent in 2005.

The string of bad news in recent months is likely to place added
pressure on President Susilo Bambang Yudhoyono to sack some of his
economic ministers in a cabinet reshuffle expected as early as next
week.

Indonesia's consumer price index rose 17.89 per cent in October compared
with the previous year, which was well above market forecasts of 13.6
per cent and the biggest rise since June 1999.

Bank Indonesia responded late on Tuesday by raising its benchmark
short-term interest rate by 1.25percentage points to 12.25 per cent -
its most aggressive tightening since the Asian financial crisis.

The spike in inflation was caused largely by the government's move last
month to slash costly fuel subsidies and raise prices by an average 126
per cent in a bid to ease fiscal pressures and appease financial
markets.

Analysts say rising interest rates and high inflation will reduce
household consumption and consumer bank lending, leading to a slowdown
in investment and overall economic growth.

Domestic and foreign investment has been growing strongly in 2005,
reflecting generally positive sentiment towards the economy and the
pro-business reforms of Mr Yudhoyono's government.

Standard Chartered economist Fauzi Ichsan said the fiscal benefits of
cutting fuel subsidies might end up being outweighed by higher interest
rates and rising levels of unemployment and poverty. He said he would
revise down his GDP growth forecast of 5.5 per cent for 2005.

But Aburizal Bakrie, the chief economics minister, said the surge in
inflation was a "one-off" and would not damage the economy in the longer
term. He said inflation would fall dramatically in November and
December.

A spokesman for Mr Yudhoyono said the President, who has come under
heavy domestic criticism for his decision to raise fuel prices so
aggressively, was shocked at news of the spike in inflation.

Mr Yudhoyono is under pressure to make changes to his cabinet after
several months of bad economic news. 
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