## IMF Survey : Indonesia—Moving in a New Direction

_IMF News, March 19, 2015_

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**Canonical URL:** [IMF Survey : Indonesia—Moving in a New Direction](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar031815a)

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## Bibliographic details
- Published: March 19, 2015

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### Overview
- Sound macroeconomic management and exchange rate flexibility over the past 18 months have bolstered Indonesia’s policy credibility and its resiliency to shocks.
- The country’s macroeconomic fundamentals and reserve buffers have been strengthened through a clearer policy framework and better policy coordination.
- The 2014 Article IV consultation concluded in March and found Indonesia in transition to a new growth model.

### Near-term outlook and key projections
- Growth is expected to reach around 5¼ percent this year, led by an expected pickup in public investment.
- Inflation should return to within Bank Indonesia’s target band of 3–5 percent by end 2015, given the current monetary stance and lower fuel prices.
- The current account deficit should narrow slightly, with a smaller oil import bill offsetting lower nonoil commodity exports.
- Foreign reserves should remain adequate.

### External risks and vulnerabilities
- Primary risks emanate from outside the country: a deeper‑than‑expected slowdown in emerging market trading partners and surges in global financial market volatility.
- These external shocks could exacerbate potential vulnerabilities in the banking and corporate sectors.
- Slower or narrower reforms than envisaged in the report’s baseline might affect the pace of growth.

### Transition to a new growth model
- Policymakers seek to hasten the economy’s move from commodity‑supported to more competitiveness‑driven growth amid the commodity down‑cycle.
- Over the past five years, the contribution of the commodity sector to GDP has declined by around five percentage points.
- Manufacturing exports have emerged as a bright spot, supported by foreign direct investment and the rupiah’s adjustment.
- Under focused reforms, more infrastructure investment, and a stable macroeconomic setting, growth is expected to rise to 6 percent by 2018.
- The government targets ramping up infrastructure investment to 8-9 percent of GDP a year through the end of the decade.

### IMF staff and Indonesian authorities: agreed policy priorities
- Sound fiscal policy as a key anchor to growth and stability objectives:
  - Despite recent energy subsidy reforms, budgetary pressures could re‑emerge without new revenue measures, given declining oil and gas revenues.
  - Larger nonoil tax revenues would help sustain increases in development expenditure and maintain a strong fiscal position, with moderate deficit reduction enhancing resilience to shocks.
- Prudent debt management to underpin the government’s strategy for ramping up infrastructure investment:
  - Financing support is expected from both domestic and external borrowing, with some off budget; these will need to be managed closely to avoid undue fiscal risks.
- Monetary policy and market functioning:
  - A relatively tight monetary stance has kept inflation in check and bolstered external inflows.
  - Exchange rate and bond yield flexibility have helped manage episodes of heightened volatility since mid–2013.
  - Further progress in improving monetary operations and deepening money markets is expected to improve monetary transmission.
- Financial and corporate sector monitoring:
  - Financial and corporate sector vulnerabilities appear manageable but require close watch given the growth slowdown.
  - The banking system remains generally sound, supported by stronger frameworks for macroprudential policy and crisis management.
  - The corporate sector warrants careful monitoring, supported by recent actions to contain risks tied to external borrowing.

### Structural reforms to raise potential growth
- Priority reform areas:
  - Easing longstanding supply bottlenecks through infrastructure investment and regulatory reform.
  - Stable trade and investment regime to attract and retain investors.
  - Human resource development and labor market flexibility.
  - Financial market deepening.
- Expected outcomes:
  - Boost potential growth and create more jobs for Indonesia’s youthful population.
  - Help contain macroeconomic imbalances, move quickly to higher‑income status, and reduce inequality.
- Early decisive action: removal of most fuel subsidies soon after the new government took office in October 2014 to free up budget space for social and infrastructure spending.

*IMF Survey : Indonesia—Moving in a New Direction — March 19, 2015.*

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## Content in this bundle

- [Cr1574pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2015/_cr1574pdf.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Indonesia and the IMF](http://www.imf.org/external/country/idn/index.htm)
- [IMF Resident Representative](http://www.imf.org/external/country/idn/rr/)
- [Indonesia reserves and liquidity](http://www.imf.org/external/np/sta/ir/irprocessweb/data/idn/eng/curidn.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar031815a_