Businesses in Indonesia Anticipate Tough Year of Inflation

Dion Bisara, Faisal Maliki Baskoro & Francezka Nangoy | January 11, 2011

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As inflationary concerns build and foreign investors pull out of Indonesia, local companies are bracing for a tough year.

“We’re not as optimistic as the government. With rising inflation, uncertainty in the electricity rate hikes and increasing oil prices, it will be good if the economy can expand by 6 percent this year,” said Sofjan Wanandi, chairman of the Indonesian Employers Association (Apindo).

“Inflation will not just affect companies’ sales, but will also boost operating costs. Companies have taken inflation into account to calculate labor wages.”

The International Monetary Fund, which provided Indonesia billions in assistance during the 1998 financial crisis, has warned that core inflation could accelerate and non-food prices could rise if food prices continue on their current course.

Jongkie Sugiarto, president director of Hyundai and vice chairman of the Indonesian Automotive Industries Association (Gaikindo), said he would monitor Bank Indonesia’s policy rate and inflation rate in the coming weeks before revising any targets.

“So far there’s still no revision [on car sales],” he said. Gaikindo has forecast national car sales to rise by up to 15 percent this year to more than 800,000 units, though that is based on the central bank keeping its rate at 6.5 percent and “inflation rates remaining at a controllable level.”

Gunawan, director of Indomobil Finance Indonesia, a financing company that focuses on car and motorcycle loans, said the company was confident about its sales target this year.

Even if the benchmark rate went up, he said, “Indonesians will still have the purchasing power to get cars or motorcycles.”

Erna Esti Utami, marketing manager of Farmers Market, also voiced optimism that people would still be able to shop.

“The only changes might be a switch from premium goods to second-line goods,” she said.

Bank Indonesia kept its benchmark rate at a record low 6.5 percent last week.

http://www.thejakartaglobe.com/business/businesses-in-indonesia-anticipate-tough-year-of-inflation/416393