Statement at the Conclusion of the 2009 Article IV Consultation Mission to IndonesiaPress Release No. 09/201
June 5, 2009
Mr. Milan Zavadjil, Senior Resident Representative of the International Monetary Fund (IMF) in Indonesia, made the following statement today in Jakarta:
“An IMF mission led by Mr. Thomas Rumbaugh, Division Chief in the Asia and Pacific Department, visited Jakarta during May 25-June 5 to conduct the 2009 Article IV Consultation discussions1. The team exchanged views with the government on the economic outlook, the impact of the global financial crisis and the economic slowdown. Based on these discussions, the team will prepare a staff report, scheduled to be presented to the IMF's Executive Board in mid-July.
“Indonesia entered the current global financial crisis in a strong position, which was built through sound policies and against the backdrop of favorable conditions in recent years. Economic growth averaged about 6 percent during 2005-07, the fiscal position has improved, the current account has been in surplus, both public and external debt have dropped to about 30 percent of GDP, and international reserves were raised to a comfortable level. In addition, financial sector soundness has been strengthened with profitable and well-capitalized banks, and better supervision.
“Benefiting from these strong initial conditions, the Indonesian economy has thus far withstood the shocks well. After enduring substantial market pressures during the last quarter of 2008, there are signs of returning market confidence as indicated by the stronger rupiah, lower interest rates, and a recovery in the stock market. Supported by election-related spending, the economy’s resilience was also evident in the stronger than expected growth in Q1 of 2009, making it one of the fastest growing economies in the G-20, while inflation is on a declining trend. Looking forward, we have raised our projection of economic growth for 2009 to 3-4 percent with inflation expected to decline to about 5 percent by the end of the year.
“The government and Bank Indonesia have effectively dealt with the policy challenges associated with the rough economic climate. Macroeconomic policies have kept pace with the impact of a slowing global economy: Bank Indonesia’s (BI) policy rate cuts since December 2008 have been appropriate and in line with the decelerating inflation and declining demand. The government was quick in assembling a fiscal stimulus package to support domestic demand, exchange rate flexibility has been maintained allowing it to absorb external shocks, and measures were taken to boost confidence and maintain stability in the financial sector.
“Economic performance has overall been very encouraging. Careful macroeconomic management will need to continue in the period ahead to deal with the potential for further adverse swings in global markets. Maintaining economic growth momentum in the second half of the year will require timely implementation of the fiscal stimulus measures as the impact of election-related spending fades. The government should also consider maintaining the stimulus in 2010. The interest rate reductions already implemented should soon be reflected in higher credit expansion and help support a recovery in domestic investment. Going forward, the monetary easing cycle may soon have run its course, and policy adjustments may be needed if global risk aversion or external liquidity risks put pressures on the balance of payments position. Over the last six months, the authorities have taken appropriate actions to contain these risks, and the staff encourages them to continue monitoring vulnerabilities, and to undertake proactive macroeconomic policy management in response to changing conditions.”
1 The "Article IV" mission is the regular annual visit by an IMF team to member countries to hold discussions and gather information on economic policies.