{
  "title": "IMF Survey: Indonesia: Sustaining the Recovery",
  "publication": "IMF News, October 10, 2007",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/socar1010a",
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  "summary": "Indonesia's economy has progressed impressively in recent years and is now in its best shape since the Asian financial crisis. However, poverty and unemployment remain high. Sustained, fast growth will be needed to improve social conditions.",
  "authors": [
    "Milan Zavadjil IMF Asia",
    "Pacific Department October"
  ],
  "publishDate": "2007-10-10",
  "sections": [
    {
      "heading": "Economic performance and outlook",
      "content": "- GDP growth is running at around 6 percent and could pick up further.\n- Prospects for continued GDP growth of around 6-6½ percent in 2007 and 2008 look good, though downside risks stem from the U.S. mortgage crisis impacts on global growth, commodity prices, risk appetite, and capital flows to emerging markets.\n- The current account surplus increased to about 2½ percent of GDP in 2006, supporting the decline in external debt and the buildup of reserves.\n- Indonesia repaid all remaining obligations to the IMF ahead of schedule.\n- At the height of the global selloff, the equity index had declined 20 percent from the all-time high reached in July; equity and bond markets quickly and fully recovered as markets calmed."
    },
    {
      "heading": "Inflation, fiscal, and financial stability",
      "content": "- Inflation remains under control and well within Bank Indonesia's target range of 5-7 percent for 2007.\n- Public finances: small fiscal deficits and public debt reduced to below 40 percent of GDP and on a continued declining trend.\n- Banking system: well capitalized, very liquid; nonperforming loans have declined; profitability is rising; corporates have deleveraged.\n- Policy aim: achieve the medium-term goal of reducing inflation to levels of major trading partners (about 3 percent), noting that historically inflation has rarely been below 5 percent."
    },
    {
      "heading": "Social outcomes and structural challenges",
      "content": "- Despite macro improvements, poverty and unemployment remain high and persistent.\n- Recent investment and growth have disproportionately benefited capital-intensive sectors such as mining, supported by high commodity prices.\n- Labor-intensive manufacturing (textiles, footwear, electronics) has suffered from restrictive labor regulations and strong regional competition, limiting formal employment growth.\n- The government aims to boost GDP growth to at least 7 percent to realize tangible improvements in social conditions; this is described as ambitious but achievable with the right policies.\n- Poverty rates have remained high, partly reflecting rising food prices; a small decrease in poverty in 2007 is noted as encouraging."
    },
    {
      "heading": "Policy priorities and recommendations",
      "content": "- Maintain confidence through proactive and predictable macroeconomic management.\n  - Monetary policy should remain focused on inflationary developments and continue the inflation targeting regime introduced in 2005.\n  - Clearly communicate the priority of the inflation target and set interest rates appropriate to achieve that objective.\n- Fiscal policy should use declining debt ratios to create fiscal space and ramp up priority spending, with an emphasis on on-budget infrastructure investment.\n- Increase infrastructure investment to address supply bottlenecks:\n  - Raise public infrastructure investment.\n  - Increase private sector participation through public-private partnerships; a sound framework has been put in place, though project preparation and implementation need acceleration.\n- Boost private investment through improved investment climate and availability of financing:\n  - Address strict labor legislation and difficult legal and regulatory environment that impede investment, including foreign direct investment.\n  - Recent steps: a new investment law and a key tax law were passed and should help make the regulatory environment more business friendly.\n- Improve long-term financing:\n  - Credit to the private sector remains far below precrisis levels as a share of GDP; staff analysis suggests weak demand from creditworthy investors is a major factor.\n  - Enhance demand by improving the legal environment and investment climate.\n  - Increase supply of long-term financing by developing domestic capital markets and the nonbank financial sector; bank credit is generally short maturity as banks match short maturity of deposits."
    },
    {
      "heading": "Key takeaways",
      "content": "- Much progress achieved since the Asian crisis: economy in better shape, less vulnerable to external shocks.\n- Continued focus required on policies to boost public and private investment, structural reforms to improve the investment climate, support infrastructure investment, and enhance financial intermediation.\n- Stability-oriented macroeconomic policies remain critical to reduce volatility and strengthen confidence in Indonesia's economic performance.\n\nIMF Survey: Indonesia: Sustaining the Recovery — Milan Zavadjil, IMF Asia and Pacific Department, October 10, 2007.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- IMF Country Focus\n- Article: Indonesia better set\n- IMF annual consultation\n- IMF staff report\n- Selected issues\n- Indonesia and the IMF\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar1010a"
    }
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    "Authors: Milan Zavadjil IMF Asia, Pacific Department October",
    "Published: October 10, 2007",
    "GDP growth is running at around 6 percent and could pick up further.",
    "Prospects for continued GDP growth of around 6-6½ percent in 2007 and 2008 look good, though downside risks stem from the U.S. mortgage crisis impacts on global growth, commodity prices, risk appetite, and capital flows to emerging markets.",
    "The current account surplus increased to about 2½ percent of GDP in 2006, supporting the decline in external debt and the buildup of reserves.",
    "Indonesia repaid all remaining obligations to the IMF ahead of schedule.",
    "At the height of the global selloff, the equity index had declined 20 percent from the all-time high reached in July; equity and bond markets quickly and fully recovered as markets calmed.",
    "Inflation remains under control and well within Bank Indonesia's target range of 5-7 percent for 2007.",
    "Public finances: small fiscal deficits and public debt reduced to below 40 percent of GDP and on a continued declining trend.",
    "Banking system: well capitalized, very liquid; nonperforming loans have declined; profitability is rising; corporates have deleveraged.",
    "Policy aim: achieve the medium-term goal of reducing inflation to levels of major trading partners (about 3 percent), noting that historically inflation has rarely been below 5 percent.",
    "Despite macro improvements, poverty and unemployment remain high and persistent.",
    "Recent investment and growth have disproportionately benefited capital-intensive sectors such as mining, supported by high commodity prices.",
    "Labor-intensive manufacturing (textiles, footwear, electronics) has suffered from restrictive labor regulations and strong regional competition, limiting formal employment growth.",
    "The government aims to boost GDP growth to at least 7 percent to realize tangible improvements in social conditions; this is described as ambitious but achievable with the right policies.",
    "Poverty rates have remained high, partly reflecting rising food prices; a small decrease in poverty in 2007 is noted as encouraging.",
    "Maintain confidence through proactive and predictable macroeconomic management.",
    "Fiscal policy should use declining debt ratios to create fiscal space and ramp up priority spending, with an emphasis on on-budget infrastructure investment.",
    "Increase infrastructure investment to address supply bottlenecks:",
    "Boost private investment through improved investment climate and availability of financing:",
    "Improve long-term financing:",
    "Much progress achieved since the Asian crisis: economy in better shape, less vulnerable to external shocks.",
    "Continued focus required on policies to boost public and private investment, structural reforms to improve the investment climate, support infrastructure investment, and enhance financial intermediation.",
    "Stability-oriented macroeconomic policies remain critical to reduce volatility and strengthen confidence in Indonesia's economic performance.",
    "[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)",
    "[Article: Indonesia better set](https://www.imf.org/external/pubs/ft/survey/so/2007/CAR0914A.htm)",
    "[IMF annual consultation](https://www.imf.org/external/np/sec/pn/2007/pn0791.htm)",
    "[IMF staff report](https://www.imf.org/external/pubs/cat/longres.cfm?sk=21250.0)",
    "[Selected issues](https://www.imf.org/external/pubs/cat/longres.cfm?sk=21251.0)",
    "[Indonesia and the IMF](https://www.imf.org/external/country/IDN/index.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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