Inflation and Balance of Payment Crises Shed Clouds on the Economy

Abstract

In the light of next year election, most observers stated that the year 2013 would be the last opportunity for the second SBY's administration to do an overhaul reform, necessary to keep domestic economy in sustainable development mode. After big political commotion last year, the government proceeded carefully to raise domestic fuel prices in June 2013. The increase was urgent since the government budget (APBN) had already been at risk due to its huge fuel subsidy. However, even before the increase of fuel prices, consumer price index had been on the rise. Partly because of high (raw and processed) food prices that persisted since the start of 2013 and later, because of imported inflation after the Rupiah suffered severe depreciation pressures since August 2013. The pressure came from the worsening deficit in the country's Balance.