## IMF Staff Completes 2020 Article IV Mission to Indonesia

_IMF News, January 7, 2021_

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## Bibliographic details
- Published: January 7, 2021

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### Mission and context
- Press Release No. 21/2; Publication date: January 7, 2021.
- IMF team led by Mr. Thomas Helbling conducted virtual discussions for the 2020 Article IV Consultation from November 25 to December 11, 2020.
- End-of-mission press release conveys preliminary staff findings and does not necessarily represent the views of the IMF’s Executive Board.

### Economic outlook
- "The Indonesian economy has rebounded in the second half of 2020, and the recovery is expected to accelerate in 2021 and 2022."
- Real GDP projections:
  - "Real GDP is projected to expand by 4.8 percent in 2021 and 6 percent in 2022."
- Drivers of the projected rebound:
  - Strong policy support measures.
  - COVID‑19 vaccine distribution plans.
  - Improved global economic and financial conditions.

### Risks to the outlook
- "The uncertainty surrounding the growth outlook is larger than usual."
- Key risks:
  - Upside risk: early widespread vaccination.
  - Downside risk: delays in vaccination leading to a more protracted pandemic.
  - Macro-financial fallout could be larger-than-expected.
  - Credit conditions could be slow to improve.

### Fiscal policy and recommendations
- "To secure the ongoing recovery, sufficient policy support will be essential."
- Short-term fiscal stance:
  - Accommodative macroeconomic policy mix expected in 2021 is welcome.
  - 2021 budget maintains some pandemic-related emergency spending from 2020 and reallocates resources and potential carryovers to increased high-impact spending, notably public investment.
- Medium-term guidance:
  - Restore the macroeconomic policy framework (example given: "3 percent of GDP budget deficit target") that was "appropriately and temporally suspended during the pandemic."
  - A detailed fiscal strategy backed by revenue‑boosting measures is recommended to manage the balancing act and reinforce Indonesia’s prudent policy track record.

### Monetary policy and market operations
- "Pursuing monetary accommodation, through a combination of lower policy interest rates and Bank Indonesia (BI)’s government bond purchases, is appropriate under the current exceptional circumstances."
- Authorities’ plan for 2021:
  - Use only the market mechanism defined in April 2020 for BI’s government bond purchases to balance benefits and risks associated with monetary budget financing by BI.

### Banking system and financial sector reform
- "The banking system remains stable, owing to bold and timely policy interventions."
- Recommendations and observations:
  - Adequate loan loss provisioning will be critical to absorb rising asset quality risks.
  - Authorities preparing measures to promote bank lending, especially for SME financing; additional targeted policy steps could be warranted if aggregate credit does not recover as expected.
  - The envisaged financial sector omnibus bill will address regulatory challenges and provide the legal foundation for further financial deepening.
  - Complementary initiatives include BI’s money market deepening blueprint and BI’s blueprint on digitally‑oriented payment systems to improve monetary policy transmission, economic inclusion, and financial inclusion.
  - "The government’s emphasis on the importance of safeguarding the operational independence of BI is welcome."

### Structural reforms and growth-enhancing policies
- "The strong structural reform momentum should be sustained, with financial deepening and digitalization, a medium-term government strategy to secure needed tax revenue to achieve long term development goals and greater social protection, and a transition toward a greener economy."
- Specific reforms highlighted:
  - The omnibus law on job creation should help lower obstacles to new job‑creating investment and boost productivity.
  - Implementation of the Regional Comprehensive Economic Partnership (RCEP) in Indonesia would reinforce benefits from the omnibus law.
  - High‑quality governance standards in regulatory settings should be maintained when implementing the omnibus law.

### Climate and resilience
- "Indonesia’s proactive policies tackling climate change issues could put further emphasis on a greener economy."
- Recommendation:
  - Further progress in monitoring and execution of adaptation plans to increase resilience to climate change is desirable, given Indonesia’s high exposure to related natural hazards.

### Engagement and acknowledgements
- The IMF team exchanged views with officials in the government, Bank Indonesia, Financial Services Authority (OJK), other public agencies and representatives of the private sector.
- The team thanked the authorities for "the frank and constructive discussions in the virtual meetings, as well as for the logistical support."

*IMF Staff Completes 2020 Article IV Mission to Indonesia — Press Release No. 21/2, January 7, 2021.*

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## References

- [Indonesia and the IMF](http://www.imf.org/external/country/IDN/index.htm)
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_Source: https://www.imf.org/en/news/articles/2021/01/07/pr212-indonesia-imf-staff-completes-2020-article-iv-mission_