JAKARTA (TheInsiderStories) – Indonesia’s economy is expected to encounter numerous challenges in 2018, both external and internal. In response, Bank Indonesia will direct its policies toward strengthening the positive growth momentum that has been built this year, as well as maintaining macroeconomic stability, Bank Indonesia Governor Agus D. W. Martowardojo said at the annual Bankers Dinners last night (28/11).
The stability of the national macro-economy and financial system in Indonesia has been well-maintained in 2017, supported by viable policies. This has gained positive recognition from various international agencies, including rating institutions – such as Standard & Poor’s, which has raised Indonesia’s rating to ‘investment grade’, as well as Moody’s and Fitch.
‘Bank Indonesia will focus its policies on guarding macroeconomic and financial system stability,’ Martowardojo confirmed. In terms of monetary policy, the central bank will make adjustments, including the widening of the average statutory reserves, known as Giro Wajib Minimum (GWM), not only covering statutory Rupiah reserves but also statutory foreign currency reserves.
In addition, BI will continue to develop non-US dollar swap hedging instruments by expanding the variety of currencies that can be transacted.
The central bank will also strengthen its macro-prudential policies, with a focus on three important aspects: first, implementation of buffer liquidity and second, implementation of a macro-prudential intermediary ratio as a move to strengthen the loan-to-funding ratio. The third is a modification of macro-prudential instruments.
Bank Indonesia, the governor added, will also continue to stimulate the growth of small- and medium-scale businesses, as well as the Syariah economy by referring to a blueprint of Syariah economic and financial principles.
‘All policymakers need to carry on with their efforts to strengthen growth momentum, by implementing more progressive economic policies,’ Martowardojo said.
Regarding the payment system, the central bank will continue to upgrade interconnections in the country’s financial and domestic retail payment networks, under the framework of a National Payment Gateway, as well as issuing new regulations on financial technology.
Looking at economic prospects, Bank Indonesia expects the global economy to revive on the back of a pick-up of global commodity prices. Interest rates around the world are expected to rise in line with tightening monetary policy in certain major advanced countries, specifically the US.
As for economic growth, Bank Indonesia reiterated its early projection that the national economy would grow within a range of 5.1-5.5 per cent next year, inflation held around 3.5+1 per cent, banks’ third-party funds and lending projected to grow by 9-11 per cent and 10-12 per cent, respectively.
The current account deficit is projected to inch up, but should still be below 3 per cent of GDP.
President Joko Widodo said at the bankers’ dinner that it is important for policymakers to take advantage of the ‘positive momentum’.
One positive trend is the improved rating of the country’s economy, an upgrading of the ‘Ease of Doing Business’ (EoDB) ranking issued by the World Bank, whereby Indonesia moved to 72nd place from 106th, as well as the birth of new growth engines (such as an expansion of tourism) as reflected by the rise of tourist arrivals in the country.
‘This should inspire optimism throughout the business community in Indonesia,’ President Widodo said. However, the government does not intend to be complacent. The government, he said, will continue to carry on with structural reforms as well as other steps, such as issuing more appropriate and relevant laws and regulations.
The President also stressed that the business community and policymakers must now get used to a ‘new normal’, as in the past, Indonesia’s economy relied too heavily on a commodity price boom, whereas today there are new sectors that drive the country’s economy, including tourism.
As of the third quarter, the number of tourist arrivals in the country reached 10.46 per cent, surging 25 per cent over the same period last year of 8.36 per cent.
In addition, Widodo pointed to consumer lifestyles as also changing, in line with a rapid development of technology. Consumers tend to prefer buying goods online rather than shopping in traditional brick-and-mortar outlets. (*)