Jakarta – The International Monetary Fund (IMF) said on Tuesday Indonesia was on track to achieve single digit inflation by year end, a day after Jakarta reported its first increase in annual inflation in six months.
The Fund also said it projected public debt, a major economic issue for the crisis-hit country, would fall to 75 percent of gross domestic product (GDP) this year from around 90 percent last year, freeing up more funds to boost the economy.
Both predictions were generally regarded as optimistic by the market, although the inflation forecast was seen as more realistic than the debt figures for the cash-strapped nation.
"We still think inflation is on track to achieve single digit by year end," IMF senior resident representative in Jakarta David Nellor told reporters, adding part of the reason was the expected continued stability of the rupiah currency.
The rupiah, the region's best performer in 2002, has gained by around 17 percent against the dollar this year.
The statistics bureau on Monday said year-on-year inflation had risen to 10.60 percent in August from 10.05 percent a month earlier, prompting speculation further interest rate cuts would be limited.
Indonesia's inflation, one of the highest in Asia, is targeted at nine percent under this year's state budget, from 12.55 percent in 2001.
Analysts have said the likely continued stability in the local unit would help keep inflationary pressures manageable despite higher demand ahead of year-end celebrations.
However several economists have begun questioning whether the rupiah can go much higher and most doubt the government's nine percent inflation target can be reached.
"The expected stable rupiah should help the government to contain the pressures within manageable levels. Our forecast for year end inflation is around 10 percent," said economist Fauzi Ichsan of Standard Chartered Bank in Jakarta.
Debt outlook
The Fund, which has a $5 billion loan programme with Indonesia, also said the country's debt situation should improve this year.
"We are already in September, based on our expectations for the year as a whole, public debt should be in the order ... of 75 percent [of GDP]," Nellor told reporters. Indonesia's combined foreign and domestic debt stands at some $150 billion.
Economists, however, said Nellor's forecast was too upbeat given doubts over whether Jakarta would be able to post higher economic growth to provide revenue to pay off old debt.
"It seems to be too optimistic given the huge debt problem and lingering doubts on whether the government would be able to meet its four percent GDP target this year on the back of the weak investment," said an economist with a local brokerage.