The Jakarta Post, Jakarta

The government and central bank have set an inflation target for the next three years as a benchmark for fiscal and monetary regulators, to determine policies and to provide certainty for businesses.

Finance Minister Sri Mulyani Indrawati told a press conference late Thursday the inflation target was set at 5 percent (plus and minus 1) for 2008, at 4.5 percent (plus and minus 1) for 2009, and at 4 percent (plus and minus 1) for 2010.

"This inflation targeting system is crucial not only for policy makers, but also for business players in calculating the cost of their business," Sri Mulyani said.

The target, she said, had factored in the oil prices — which have been hovering at close to US$100 per barrel — and the 2009 general elections.

"The target will allow us, for instance, to ensure stability of prices in main commodities, as well as ensuring the supply and distribution of those commodities."

The target is considered by commentators to be realistic due to the relatively low inflation trend the country has experienced in the last few years.

The Central Statistics Agency (BPS) reported Wednesday that 2007's full-year inflation stood at 6.59 percent, slightly lower than the 6.6 percent booked a year earlier.

Under the 2008 state budget, the government expects inflation this year to reach 6 percent.

Sri Mulyani said the government expects the inflation-targeting system to help retain the momentum of growth in the country's economy, which is targeted to expand this year by 6.8 percent, from an estimated 6.5 percent in 2007.

With inflation kept relatively low, it will do little to damage the public's purchasing power and will help in turn retain robust consumption — which has been the nation's main engine for economic growth since the 1998 economic crisis.

BPS data shows consumption makes up some 70 percent of the economy, as reflected in gross domestic products (GDP).

Investment and exports are the other two components of the economy.

Low inflation rates would also provide a leeway for the central bank to reduce its benchmark interest rates, which would result in the cheaper cost of borrowing and greater economic activity.

To monitor these targets and strengthen coordination, a forum, called the Coordinating Forum for Inflation Controlling, has been established.

Headed by the coordinating minister for the economy, forum members include the finance minister, Bank Indonesia's governor and the trade minister.

"We will meet regularly under this forum and possibly determine certain measures to keep inflation targets on track," Coordinating Minister for the Economy Boediono said.

Trade Minister Mari Elka Pangestu said on her part, the trade ministry would focus on ensuring stable prices and supply and distribution of key commodities, which have a significant bearing on inflation of commodities including rice, sugar and cooking oil. (adt)

Tag: Coordinating Forum for Inflation Controlling