Indonesian inflation edges up

The impeachment of President Wahid is adding to Indonesia's problems

Indonesia's central bank has said that inflation will rise higher than expected this year.

Bank Indonesia now expects 2001 inflation to be between 9% and 11%, instead of its previous estimate of between 6% and 8.5%.

It believes the original inflation target "will be exceeded because of continuing risk factors... which will cause economic conditions in the second half to worsen".

Late on Friday Indonesia's national assembly called a snap impeachment hearing against President Abdurrahman Wahid, to begin on Saturday.

The move came despite Mr Wahid's decision to suspend a threatened declaration of emergency rule.

Jakarta's political crisis threatens to intensify Indonesia's economic problems by bringing further unrest.

Unrest drags down rupiah

Explaining its gloomy inflation forecast, the central bank highlighted "increasing uncertainties" which have triggered a fall in the value of Indonesia's currency, the rupiah.

Continuing risk factors... will cause economic conditions in the second half to worsen

Bank Indonesia

The rupiah depreciated by 13.4% in the April-to-June period when compared to the first quarter of 2001, it said.

The rupiah's weakness was caused by an increased "demand for foreign exchanges for security as well as speculation purposes", the central bank said.

Prices at the end of June were 3.28% higher than at the end of March, it said.

Prices edge up

The yearly consumer price index (CPI) inflation rate for the second quarter of 2001 was up 12.11% on the second quarter of 2000.

The cumulative inflation rate for the year to 30 June was 5.46%.

Indonesia's economy has floundered from one crisis to another in the last few years.

The country is struggling to re-build a collapsed banking sector, while paying interest on billions of debt that almost exceeds its annual gross domestic product.

It is also in the process of repairing its relations with international creditors and the International Monetary Fund (IMF) by overhauling its 2001 budget.

Progress on IMF loan

A senior IMF representative, John Dodsworth, said on Tuesday that a loan of $400m could be paid as soon as August.

The loan has been frozen since December last year.

Indonesia needs to make asset sales but needs to make them on the right terms

IMF official

Under an IMF programme, Indonesia must phase out all subsidies by 2003.

The government recently raised the cost of fuel by 30% as part of an attempt to reduce state subsidies.

Mr Dodsworth also said progress on bank restructuring should not rushed.

The IMF originally froze the loan because of lack of progress on the sale of banking assets.

"Indonesia needs to make asset sales but needs to make them on the right terms," said Mr Dodsworth.

The asset sales, including the disposal of a 30% stake in Indonesia's largest retail bank, Bank Central Asia, are being carried out by the Indonesian Bank Restructuring Agency (IBRA).

In June, I Putu Gde Ary Suta became IBRA's fourth head in only one-and-half years.