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August 27, 2008

Indonesia’s central bank considers regional inflation-controlling team

Bank Indonesia (the central bank) is looking into the possibility of forming a regional inflation-controlling team involving a number of officials and economists, state news agency Antara quoted official as saying Tuesday.

"Inflation in all parts of the country has so far resulted from a lack of coordination among regional governments in applying the goods distribution system," the deputy chief of the central bank (BI) office in Kediri, Marlison Hakim, said on Tuesday.

The absence of common understanding among regional administrations in applying the goods and service distribution system had contributed a lot to the rise in the prices of goods and services, he said.

The team would be made up of officials from regional development planning agencies (Bappeda), transportation offices and the Central Bureau of Statistics (BPS) as well as academicians and economists, he said.

Meanwhile, Andry Prasongko, a researcher from BI`s directorate of economic research and monetary policies, said the benchmark interest rate known as BI Rate was not the only means of controlling inflation.

"The inflation-controlling team must later play a big role. In South Sulawesi, police and military personnel also get involved in controlling inflation," he said after addressing a seminar on latest economic developments here.

The other means of controlling the inflation were reserve requirement (GWM) and BI`s intervention in the money market, he said.

"We must keep in mind that the involvement of several agencies is needed because inflation in all parts of the country results from the absence of a harmonized system in the distribution of goods and services," he said.

The absence of a harmonized system in the distribution of goods and services had given rise to rampant illegal levies, he said adding BI noted that 50 percent of goods and service distribution cost went to illegal levies.

"We believe if the illegal levies are scrapped, the prices of goods and services can be kept down and this will eventually hamper inflation rate," he said.

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