Transcript of a Press Conference Call on Indonesia

With Thomas Rumbaugh, Mission Chief for Indonesia of the IMF’s Asia and Pacific Department
Washington, D.C., Tuesday, July 28, 2009

MS. KAMATA: Good evening. This is Yoshiko Kamata of the IMF Media Relations. Welcome to the conference call on the IMF’s conclusion of the Article IV Consultation with Indonesia.

I believe you have already received the Public Information Nation which was released about one hour ago, and this conference call is intended to give you an opportunity to ask us further questions regarding this Article IV Consultation.

Here with me is Mr. Thomas Rumbaugh, Division Chief of the IMF’s Asia Pacific Department, and Mission Chief for Indonesia.

MR. RUMBAUGH: Thank you, Yoshiko. As she said, we have issued the Press Information Notice. I think in that notice maybe I can summarize a couple of points that were noteworthy from the Article IV Consultation this year, and then we can open it for questions.

One of the big stories is that Indonesia is actually done very well in dealing with the global economic crisis that has adversely affected nearly everyone around the world. And, in fact, Indonesia is projected this year to be the third fastest growing economy in the G-20.

A couple of important reasons for that were that they entered this crisis in a very strong macroeconomic position and they had appropriate policy adjustments after the onset of the crisis. In addition, they have a very large domestic market which sets them apart from some of the other export-dependent economies in the region. So, for these reasons, they did very well.

We think going forward that they should continue to do well. We think on fiscal policy that they have room to spend more of the stimulus package. And, on monetary policy, they have already implemented a lot of stimulus measures and that maybe it’s time to slow down and ease off on monetary policy until they wait and see how conditions evolve.

MS. KAMATA: Thank you, Tom. Let us take your questions now.

QUESTIONER: You mentioned about caution in a further monetary stimulus. Do you think that another quarter point cut in the banking interest rate will be still justified for now?

MR. RUMBAUGH: I don’t think that we’re getting to the point of where we can finely draw the line as to exactly how much stimulus is appropriate, but we do think that they’re near the end of the easing cycle. So, whether one more quarter point cut is called for or not is something that people can debate both ways.

So, you know, I don’t think we would find any reason to be upset if they decided to do one more quarter point cut, but we do think they’re very close to the end or should be very close to the end of the easing cycle.

QUESTIONER: Yes, I want to ask Mr. Rumbaugh about how is the initial outlook for 2010 because you mentioned that for 2009 that it is really optimistic to reach the growth target. How about for next year?

MR. RUMBAUGH: We think the outlook for next year also looks good. I think, you know, the global economy is going to be starting to recover in 2010, but it’s going to be a slow drawn-out recovery in the global economy. So we do see Indonesia’s growth rate improving further in 2010 but still somewhat below the rates that they achieved in earlier years, and it will take another year or two to get back to those growth rates.

QUESTIONER: I was just looking for some more additional details on your comment of Indonesia building larger reserve buffers. Do you have kind of a target or anything of that sort, and can you give some more details exactly how Indonesia should go about doing this?

MR. RUMBAUGH: There’s no magic formula to determine the optimal level of reserves for any country, but what we noted during the Article IV Consultation and in the staff report, which will be published—I think it will be posted in a few days—is that Indonesia’s current reserve levels are adequate. And, I think this was demonstrated over the last six months when they were hit very hard by, as everybody else was in the world, by a severe global financial crisis, and they were able to withstand that.

But, at the same time, we’re noting that somewhat larger buffers would put them in an even more comfortable position. So it’s just saying at the margin there is room for them to have a little bit of a bigger cushion going forward.

And, as far as how to get there, one of the things that we noted is that, you know, there are a lot of contingency arrangements and credit lines and swap agreements being discussed bilaterally and within the region, and, to the extent that those are made effective and activated, that is one way to do it and a very inexpensive way to do it. If there are delays on that side, then they could always build their own reserves a little bit more.

QUESTIONER: Do you have any inflation forecasts? I don’t see that in your statement today.

MR. RUMBAUGH: I’m sorry. Did you say inflation forecasts?

QUESTIONER: That’s right, for this year and next year.

MR. RUMBAUGH: Yes, we think the inflation this year is basically going to come down to around 5 percent, actually, maybe even a little bit below 5 percent by the end of the year—so, around 4 percent, in that range. And then, for 2010, we basically see it stabilizing around that range of 5 percent or so.

OPERATOR: There is no one in queue at this time.

MS. KAMATA: Okay. Then, let’s wrap up. Well, thank you so much for joining this press conference call. Have a nice day.

MR. RUMBAUGH: Thank you.



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