The call to work together in facing global challenges was unveiled during an event held as part of the 2018 IMF-World Bank Annual Meetings in Nusa Dua, Bali, Wednesday. At the 2018 Central Bank Forum held by Bank Indonesia (BI) and the Federal Reserve of New York, United States, Indonesia encouraged central banks of the world to communicate with each other and work together to overcome global financial uncertainties.
"Central banks as an international community can help each other. Good and clear communication, including from the United States, is one of the key factors in reducing uncertainty," said BI Governor Perry Warjiyo.
Perry said all countries needed to adapt and make policy adjustments in facing uncertainty. Harmonization and synchronization of monetary policy of each central bank in response to domestic and global economic challenges were needed, he said.
According to Perry, at present, the Indonesian economy is still stable and resilient, as seen in the country’s positive economic growth, low inflation as well as its ability to maintain the stability of the financial system. However, Indonesia must still pay attention to changes in the global economy in issuing economic policy measures.
"BI responds to global financial uncertainties with monetary and macroprudential policies. The Indonesian government has responded to that by keeping the fiscal deficit not too wide, controlling imports, and increasing exports," Perry said.
In the forum, the president and CEO of the Federal Reserve Bank of New York, John Williams, said the US central bank was still normalizing its monetary policy. The progress of the normalization was quite successful, because the US economy grew positively and inflation could be kept within the target, while unemployment could be reduced, he said. With such positive results, the process of policy normalization could be completed next year or the following year, he added.
"We recognize the normalization process has an impact on the world financial and monetary system, especially developing countries. We continue to monitor and analyze developments around the world to understand how our policies affect the global economy and the US economy," he said.
Williams added that transparent communication and exchange of data among the central bank played an important role in minimizing misunderstanding, market disruptions and volatility. These problems could disrupt the common goal to maintain a solid and stable economy.
Separately, Vice President Jusuf Kalla said in Bali that the government was preparing a number of policy measures to adjust to the global economic development. The steps were needed to ensure the Indonesian market remains highly resilient to the dynamics of the global economy, he added.
“Our economy, in these days, these months, is facing many challenges. The government will take swift [action] to manage all these challenges, so that the economy will continue to grow," he said.
Risk
The financial counselor and director of the Monetary and Capital Markets Department of the IMF, Tobias Adrian, said the risk of the global financial system was increasing in the short-medium term. Risks will overshadow developing countries at least in the next two to three years due to the acceleration of the increase in US interest rates and tightening global liquidity.
"There is no good news from our last report six months ago. The foreign fund outflow remains large,” Tobias said.
According to the latest IMF report, global uncertainty overshadows the economic policies of developing countries. The pressure resulting from the US-China trade war will also have an impact on trade in the Southeast Asian region. Conversely, in developed countries, investor confidence is getting better, and even tends to be too comfortable. This needs to be addressed quickly and carefully.
According to Tobias, developing countries can exert external pressure through buffer policies and an increase in the domestic investor base.
So far, the Indonesian economy is considered quite strong in facing the external pressure, with projected growth of 5.1 percent this year. Negative sentiment may come from rising world oil prices and the current account deficit. "The volatility of the rupiah is quite stable thanks to a fast and careful policy response," Tobias said.
Trading
In the global trade sector, countries in the world are expected to be able to reduce trade disputes and create a flexible negotiating climate. Trade modernization can be done through e-commerce.
These were highlighted during a seminar entitled "How Global Trade Can Encourage Growth for All". In the opening of the seminar, IMF managing director Christine Lagarde quoted philosopher Adam Smith, “Trade, which, naturally, should create between nations, as well as between individuals, bonds of unity
and friendship has become the most abundant source of enmity and controversy. "It reminds us that promoting a better trading system has never been an easy task," Lagarde said.
Therefore, Lagarde continued, every country needed to work together to reduce trade disputes and enter into constructive discussions. Countries needed to join hands to improve and modernize the global trading system, not destroy it.
A modernization of the trading system was needed, such as by opening e-commerce and other trading services. A more flexible negotiation approach in the World Trade Organization, including plurilateral agreements, can be developed.
The Financial Services Authority (OJK) improves coordination and communication with the government and BI in preparing various policies to deal with global economic pressures.
"The OJK has issued incentives for banks to finance export-oriented industries and import-substitution industries, as well as the tourist industry," said the chairman of the OJK Board of Commissioners, Wimboh Santoso. (H E N / D I M / K R N / H A M)
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