Indonesia’s Economic Resilience Tested

KOMPAS/RADITYA HELABUMI

The Jakarta Compost Index (JCI) on the Indonesia Stock Exchange (IDX), Jakarta, is still under pressure. In Thursday\'s trading (4/10/2018), the JCI closed down 1.88 percent or 111.12 points to the level of 5,756.62.

JAKARTA, KOMPAS – Indonesia has introduced a number of policies over the past two decades to develop economic resilience; this resilience is currently being tested by the pressures of the increasing global economic uncertainties.

The weak point and the biggest task in dealing with these external factors are to reduce the current account deficit. This is necessary because the problems relating to the current account deficit, which has developed over the last five years, remain unresolved.

When the global economy is in turmoil, the economies of Indonesia and countries with current account deficits are also affected.

These issues were raised during Thursday’s book launch for Realizing Indonesia\'s Economic Potential, held by Bank Indonesia (BI) and the International Monetary Fund (IMF) in Jakarta. The IMF makes five key recommendations for the Indonesian economy in the book.

First, increase the tax ratio gradually and prudently. Second, open new economic sectors for private investors and renew the role of state companies and their subsidiaries. Third, raise the risk-free yield curve to be used as a benchmark. Fourth, expand the domestic investor base for local governments to support developing and financing local investments to reduce dependence on foreign capital. Fifth, modernize financial regulations.

Based on the Jakarta Interbank Spot Dollar Rate (Jisdor) reference rate, the rupiah weakened further to 15,133 per US dollar on Thursday. The rupiah was traded on the spot market at 15,191 per US dollar. From January to Oct. 4, the rupiah has depreciated 11.98 percent.

The book’s editor and IMF Mission Chief for Indonesia Luis E. Breuer said that Indonesia had made significant political, economic and social progress in the last two decades, which had made the Indonesian economy more resilient and more flexible in facing global economic turmoil.

Indonesia was currently facing four external challenges: an increase in world oil prices, trade wars, an increase in the US Federal Reserve’s (the Fed) interest rates, and a stronger US dollar. These problems had caused turmoil in Indonesia and in other developing countries.

"The current account deficit in Indonesia is still a problem, because there are still a large amount of funds leaving the country. For this reason, Indonesia needs to improve the performance of the current

account so that there is no more deficit, among others through structural reforms, deepening financial markets and increasing the role of domestic investors in financing the economy," he said.

Gradual

BI senior deputy governor Mirza Adityaswara said Indonesia had reformed its economic policies in stages. However, the biggest task for Indonesia now was to overcome its current account deficit.

The rupiah’s depreciation against the US dollar, which has occurred since 2013, is inseparable from the current account deficit. By the second quarter of 2018, Indonesia\'s current account deficit had reached US$8 billion, or 3.04 percent of gross domestic product (GDP).

"By the end of the year, the current account deficit is projected to widen further to $25 billion, because the volume of capital outflows are larger than inflows of foreign funds," he said.

Raden Pardede, a former secretary of the Financial System Stability Committee, said the problems surrounding the current account deficit must be resolved. Steps that could be taken towards this end included evaluating government development projects and reducing the oil and gas trade deficit.

Meanwhile, during an event at the Atma Jaya Catholic University Jaya that Breuer also attended, Atma Jaya rector A. Prasetyantoko said that the policy on increasing state revenues through taxation needed reform. He said tax reform was necessary to expand the tax base. (HEN/JUD)