Indonesia prepares for inflation

Trade Minister Mari Elka Pangestu said on Tuesday that although there was concern about surging food and oil prices, Southeast Asia’s largest economy has taken the necessary measures to protect its poor and unemployed.

“It’s something that we are worried about, like we were in 2008,” Mari said on Tuesday, referring to skyrocketing prices of food and commodities that year.

She was commenting on a report of the Manila-based Asian Development Bank that said increasing food prices coupled with the rising cost of crude oil are threatening to push 64 million people in Asia into extreme poverty.

The reports says domestic food inflation in a number of regional economies in Asia averaged 10 percent in early 2011.

Along with crude oil, high food prices have created a serious challenge for the region, the ADB said. It added that if the situation persisted until the end of the year, economic growth in the region could be reduced by up to 1.5 percentage points.

Mari said the government would stay alert, especially in stabilizing the price and supply of rice, the staple food for the vast majority of Indonesians.

The government, she said, has come out with a number of regulations to stabilize the price and supply of rice.

Mari said it was important to protect the poor from rising food prices with programs such as Raskin, or rice for the poor, household programs and subsidized cooking oil for the poor.

She added that agriculture ministers from Asean, of which Indonesia is a member and the current chair, are discussing an emergency rice reserve and pushing for food security to become the main topic at the next G-20 meeting.

Economists Purbaya Yudhi Sadewa of the Danareksa Research Institute and Helmi Arman of Bank Danamon downplayed the ADB’s concerns, saying Indonesia’s accelerating economy would cushion the impact from such phenomena. The economy expanded by 6.1 percent last year and is forecast to grow by 6.5 percent this year.

“With Indonesia’s economic growth, I doubt there will be a significant impact on our unemployment and poverty. The government is still on target to reduce unemployment to 7 percent this year,” Purbaya said.

Food prices in Indonesia showed a decline in February and March, slowing down inflation. Consumer prices fell 0.32 percent in March from the previous month, mostly due to food prices.

The Central Statistics Agency (BPS) said that as of March 2010, 31 million Indonesians, or 13.3 percent of the country’s 230 million people, live below the poverty line.

According to the ADB report, volatile food prices are likely to continue because of rising demand for food from developing countries, competing uses for food grains, shrinking available agricultural land and stagnant or declining crop yields caused by bad weather.