IMF: Indonesia’s Resilience Well Tested

KOMPAS/WAWAN H PRABOWO

IMF Managing Director Christine Lagarde (center) and Finance Minister Sri Mulyani Indrawati (right) with moderator Rosianna Silalahi (left) speak in a discussion entitled “Empowering Women in the Workplace”, at Westin Hotel, Bali, Tuesday (9/10/2018). The activity, which is a part of the 2018 International Monetary Fund-World Bank annual meetings, include discussion of the role of women in promoting economic growth in a country and the obstacles faced by women to be independent and confident.

NUSA DUA, KOMPAS – Indonesia\'s economy is expected to grow by 5.1 percent in 2018. Amid global uncertainty, the country is still attractive to investors, but it should overcome certain challenges to improve its economic resilience.

The world economy and cross-border trade have been disrupted. Global economic output is projected to grow by 3.7 percent annually in 2018 and 2019, lower than the previous estimate of 3.9 percent. The adjustment comes in response to global economic and financial uncertainties.

Indonesia\'s gross domestic product (GDP) is now projected to grow by 5.1 percent in 2018, 0.2 percentage points less than what had been predicted back in April.

The International Monetary Fund (IMF) considers Indonesia\'s economic growth a success story. Amid global pressure, Indonesia\'s economic resilience was well tested, because the country still managed to grow. However, Indonesia is expected to react to global disruption with increasing domestic economic resilience.

IMF managing director Christine Lagarde told kompas in an interview on Tuesday that Indonesia’s economic fundamentals were very strong and solid. Amid global economic uncertainties and natural disasters in Lombok (West Nusa Tenggara) and Central Sulawesi, Indonesia was able to keep inflation, budget deficits and current account deficits on track.

Indonesia is also known for its fiscal discipline and flexible monetary policy in facing global pressure. The current weakening of the rupiah is purely due to the strengthening US dollar, not because of weak economic fundamentals.

"Indonesia is expected to be able to well combine fiscal discipline and flexible monetary policy, so that it can adjust to global pressure," said Lagarde.

The volume of world trade is estimated to grow 4.2 percent in 2018 and 4 percent in 2019.

At the World Economic Outlook press conference, IMF chief economist and research director Maurice Obstfeld said Indonesia\'s economy was still quite strong and the government still had the opportunity to push the Indonesian economy. Improved policies and infrastructure development would make Indonesia more attractive to foreign investors.

"The government needs to bring Indonesia to a higher level, be able to cope with global economic uncertainty, and take appropriate policies. Infrastructure development, raising investment and structural reforms are expected to be more helpful," he said.

Obstfeld said the risk of global uncertainties would remain strong as a result of the tightening of US monetary and fiscal policies and the escalating US-China trade tension.

"The imposition of tariffs on US imports from China and other countries can disrupt global supply chains," he added.

According to Obstfeld, each country needs to strengthen and adjust fiscal policies and structural reforms to improve economic resilience. Every country needed to jointly promote multilateral trade agreements.

Depressed

Bank Indonesia Deputy Governor Dody Budi Waluyo said BI had taken into account the revised world economic growth when raising BI\'s benchmark interest rate last month.

According to Dody, the global economy is still under pressure. This affects world trade, commodity prices and the purchasing power of developed and developing countries. "We introduce a policy mix with the government to maintain the purchasing power of the people," he said.

Finance Minister Sri Mulyani Indrawati said the IMF projection was based on various factors from the demand and supply side. At present, aggregate demand was affected by higher US interest rates and currency depreciation in almost all countries.

"The trade balance must be corrected immediately by increasing exports and reducing imports. It is important to mitigate the impact of the increase in BI interest rates on investment and exchange rates," she said.

PT Sarana Multi Infrastruktur\'s president director Emma Sri Martini said the moment of slowing economic growth and global trade could be used to develop new financing instruments. Such instruments could be traded when the global economy recovered.

Meanwhile, Fajrin Rashid, the co-founder and president of Bukalapak, asked the government to move quickly. Despite believing that Indonesia\'s economic conditions are still good, the impact of global economic uncertainties on various sectors, including micro, small and medium enterprises, had to be prevented. (HEN/KRN/DIM/MED)