Regions and Countries

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p. 6 of 15 BACK | NEXT Map Executive Summary I. Recent Economic Developments A. Growth, Employment, Savings, and Investment B. Fiscal Developments C. Monetary Developments and Prices D. Financial Sector Development E. External Trade and Balance of Payments II. Short and Medium-Term Economic Prospects and Policy Issues III. Corruption as a Challenge to Development Appendix

Country Economic Review - Indonesia : I. Recent Economic Developments

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C. Monetary Developments and Prices

24. Indonesia experienced considerable resurgence of inflation in 2001. The consumer price index (CPI) rose 11.5 percent% on an annually basis, after registering a less than 4 percent% rise in 2000 (Table ). Although volatile on a monthly basis, through 2002-Q1, inflation in the first quarter of 2002 is still quite high, with the CPI up 14.0 percent% at the end of March (on a 12-month basis). The monthly measures show moreover that inflationary pressure had begun to manifest itself in mid-2000., making Thus inflationary expectations are likely to be difficult to change in the short near-term. Finally, price pressure is expected in the coming months from anticipated increases in fuel prices, electricity, and telecommunication rates. These developments put at risk the Government's budgetary assumption of 9-10 percent% annual inflation for 2002.

25. One factor that may ease future inflationary pressure is the recent fall-off in the growth rates of the monetary aggregates, especially narrow money (currency and demand deposits in banks). In 2001, the annual growth rate of narrow money had averaged 17.9 percent% through through November, but in December 2001, the growth rate fell sharply to 9.6 percent%. The relatively accommodative monetary policy, with continuousal rapid growth of monetary aggregates since mid-1999 until end-2001, was an important factor encouraging a the resurgence of inflation. The measure of broad money (including time deposits) also showed some slowing of growth from 14.9 percent% for the first 11-months of the year to 13 percent% at the end of December. Lower growth rates for both narrow and broad money continued through the first two months of 2002-a trend that might help reduce inflation over the next few months.

26. Interest rates also suggest relatively accommodative monetary policy throughout 2001 (Figure 8). The key one1-month Sertifikat Bank Indonesia (SBI, or Ccentral Bbank discount rate (Sertifikat Bank Indonesia or SBI), increased on a nominal basis during in 2001, but however, the increase in inflation held the real rates roughly constant. The one1-month SBI moved from an annualized rate of 14.5 percent% at the end of -2000 to 17.6 percent% at the end of -2001. Adjusting for inflation over the previous 12--months, real interest rates were relatively constant at about 5 percent%. Even with monetary tightening, in the first 5-months of 2002, the real rates of interest measured in this fashion are lower than at any point in 2001.

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