## IMF Executive Board Concludes 2017 Article IV Consultation with Indonesia

_IMF News, February 6, 2018_

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## Bibliographic details
- Published: February 6, 2018

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### Economic performance (recent outturns)
- Real GDP growth accelerated slightly to 5.1 percent in Q3:2017 from 5 percent in 2016 and H1:2017, led by robust exports and fixed investment.
- Output gap is estimated at –0.5 percent of GDP.
- Inflation fell to 3.3 percent in November, at the lower half of the official target band (4±1 percent), driven by a slightly negative output gap and stable food prices; core inflation has remained stable at around 3 percent.
- Current account deficit declined to 1.5 percent of GDP in Q1-Q3:2017 due to higher exports.
- Credit growth remains slow, reflecting both weak demand and banks’ tight lending standards.

### Outlook and risks
- Projections:
  - Real GDP growth: 5.1 percent in 2017, rising gradually to 5.6 percent over the medium term, led by robust domestic demand.
  - Inflation: projected to remain around 3.5 percent, within the official target range.
  - Current account deficit: expected to remain contained at near 2 percent of GDP.
- Downside risks highlighted:
  - Spikes in global financial volatility.
  - Uncertainty around U.S. economic policies.
  - Lower growth in China.
  - Geopolitical tensions.
  - Domestic risks: tax revenue shortfalls and larger fiscal financing needs due to higher interest rates.
- Upside possibilities: global growth and commodity prices could surprise on the upside.

### Executive Board assessment and policy advice
- Overall appraisal:
  - Directors commended sound performance: stable growth, moderate inflation, modest current account deficit, and contained systemic risks.
  - Noted favorable outlook but urged vigilance against volatile capital flows and other risks.
- Growth and structural reform priorities:
  - Achieving higher potential growth is essential to create jobs for the young and growing labor force.
  - Priority: a self-reinforcing and well-sequenced fiscal-structural reform package that mobilizes revenues to finance development spending and supports structural reforms in product, labor, and financial markets.
- Fiscal policy:
  - Near-term policy mix appropriately focuses on supporting growth while preserving stability.
  - Fiscal adjustment in 2018 should be gradual to protect growth while rebuilding fiscal buffers.
  - Encouraged early implementation of a medium-term revenue strategy to finance growth-enhancing priority spending and structural reforms, and to reduce heavy reliance on external financing.
  - The revenue strategy should include frontloaded tax policy and administration reforms; consider short-term measures to arrest the fall in the tax ratio.
- Monetary and exchange rate policy:
  - Current stance of monetary policy judged appropriate for targeting price stability and supporting growth.
  - Recommended further enhancing monetary transmission.
  - Welcomed authorities’ commitment to maintain exchange rate flexibility and to limit foreign exchange intervention to preventing disorderly market conditions.
- Infrastructure and financing:
  - Commended progress in boosting infrastructure investment.
  - Advised aligning pace of infrastructure development with available financing and the economy’s absorptive capacity.
  - Priority to finance infrastructure with domestic revenue and greater private sector participation, including foreign direct investment, to limit corporate external debt buildup and contingent liabilities from state-owned enterprises (SOEs).
  - Recommended financial deepening through a national strategy for capital market development to support infrastructure investment.
- Regulation, SOEs, and labor/education:
  - Supported continued regulatory streamlining, targeting reductions in state control, rationalizing SOE roles, and improving coordination among ministries and regional governments.
  - Emphasized improving education and easing labor market regulations to support employment: raise level and quality of education spending, streamline job protection regulations, improve vocational training and job placement services, and enhance female labor participation.
- Financial sector oversight:
  - Took positive note of efforts to strengthen financial oversight and crisis management.
  - Encouraged focus on FSAP-identified areas: clarify institutional mandates, improve supervision of financial institutions and conglomerates, adopt a more rigorous approach to credit risk, and continue to strengthen crisis management framework.
  - Highlighted the importance of monitoring foreign exchange and external debt vulnerabilities of corporates.

### Selected economic indicators (highlights from the staff table)
- Real GDP (percent change)
  - 2013: 5.6
  - 2014: 5.0
  - 2015: 4.9
  - 2016: 5.1
  - 2017 (Q1–Q3 latest outturn): 5.3
  - 2018 (Proj.): …
- Domestic demand (percent change)
  - 2013: 4.7
  - 2014: 4.2
  - 2015: 4.6
  - 2016: 4.5
- Gross fixed investment (percent change)
  - 2013: 4.4
  - 2014: 6.0
  - 2015: 5.8
  - 2016: 6.2
- Prices (12-month percent change, consumer prices end period)
  - 2013: 8.1
  - 2014: 8.4
  - 2015: 3.4
  - 2016: 3.0
  - 2017: 3.3 (Nov.)
  - 2018 (Proj.): 3.6
- Public finances (in percent of GDP)
  - Central government revenue: 2013: 15.1; 2014: 14.7; 2015: 13.1; 2016: 12.5; 2017: 12.0 (Jan.-Sept.); 2018 (Proj.): 12.2
  - Central government expenditure: 2013: 17.3; 2014: 16.8; 2015: 15.7; 2016: 15.0; 2017: 10.1
  - Central government balance: 2013: -2.2; 2014: -2.1; 2015: -2.6; 2016: -2.5; 2017: -2.7; 2018 (Proj.): -2.0
  - Primary balance: 2013: -1.0; 2014: -0.9; 2015: -1.2; 2016: -0.8
  - Central government debt: 2013: 24.8; 2014: 24.7; 2015: 27.4; 2016: 28.3; 2017: 29.0; 2018 (Proj.): 29.5
- Money and credit (12-month percent change; end of period)
  - Rupiah M2: 2013: 9.4; 2014: 13.5; 2015: 9.0; 2016: 11.7; 2017: 9.8 (Jul.)
  - Private Sector Credit: 2013: 20.0; 2014: 11.8; 2015: 10.3; 2016: 7.7; 2017: 8.6; 2018 (Sept.): 7.5
- Balance of payments
  - Current account balance (US$ billions): 2013: -29.1; 2014: -27.5; 2015: -17.5; 2016: -16.8; 2017: -16.9; 2018 (Prel.): -11.5; Latest outturn: -20.4
  - Current account (in percent of GDP): 2013: -3.2; 2014: -3.1; 2015: -1.8; 2016: -1.7; 2017: -1.5; 2018 (Prel.): -1.9
  - Trade balance (US$ billions): 2013: 7.0; 2014: 14.0; 2015: 15.4; 2016: 18.4; 2017: 15.8; 2018 (Prel.): 14.8
  - Inward direct investment (US$ billions): 2013: 18.8; 2014: 21.8; 2015: 16.6; 2016: 23.8; 2017: 26.6
  - Gross reserves (end period, US$ billions): 2013: 99.4; 2014: 111.9; 2015: 105.9; 2016: 116.4; 2017: 127.6; 2018 (Prel.): 126.5 (Oct.); Latest outturn: 135.0
  - Total external debt (US$ billions): 2013: 266.1; 2014: 293.3; 2015: 310.7; 2016: 318.8; 2017: 345.4; 2018 (Prel.): 335.4 (Q2); Latest outturn: 359.3
- Exchange rate (Rupiah per U.S. dollar)
  - Period average: 2013: 10,414; 2014: 11,862; 2015: 13,391; 2016: 13,306; 2017: 13,382 (Jan.–Dec.)
  - End of period: 2013: 12,171; 2014: 12,435; 2015: 13,788; 2016: 13,473; 2017: 13,579 (Dec. 18)
- Memorandum items:
  - Jakarta Stock Exchange (12-month percentage change, composite index): 2013: 22.3; 2014: -12.1; 2015: 15.3; 2016: 15.5; 2017: Dec. 18 (ytd)
  - Oil production (thousands of barrels per day): 2013: 830; 2014: 794; 2015: 800; 2016: 820; 2017: 815
  - Nominal GDP (in trillions of rupiah): 2013: 9,546; 2014: 10,570; 2015: 11,532; 2016: 12,407; 2017: 13,604; 2018: 14,852

*Source: IMF Executive Board conclusion of the 2017 Article IV consultation with Indonesia (concluded January 10, 2018); data provided by the Indonesian authorities; and IMF staff estimates and projections.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [High-Level International Conference:](https://www.imf.org/en/News/Seminars/Conferences/2018/01/05/asean-conference)
- [http://www.imf.org/en/Countries/Infographics/Indonesia/2018-indonesia-country-infographic-english-bahasa](http://www.imf.org/en/Countries/Infographics/Indonesia/2018-indonesia-country-infographic-english-bahasa)
- [https://www.imf.org/en/News/Seminars/Campaigns/2018/VTI](https://www.imf.org/en/News/Seminars/Campaigns/2018/VTI)
- [Indonesia and the IMF](http://www.imf.org/external/country/IDN/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/02/06/pr1836-imf-executive-board-concludes-2017-article-iv-consultation-with-indonesia_