BI Pushes Developed Countries to Synchronize Monetary Policy

Indonesia's Foreign Capital Inflows US$6.3B in 1Q 2019
Governor of Bank Indonesia Perry Warjiyo. Photo by TheInsiderStories.

JAKARTA (TheInsiderStories)—Bank Indonesia (BI) will push the developed countries to synchronize their monetary policy in order to minimalize the impacts to the developing countries.

BI governor Perry Warjiyo on Monday (4/6) said will bring the idea of synchronization to the International Monetary Fund (IMF) and World Bank (WB) Meeting in October 2018.

“What we want to raise in this meeting, is how synchronization of monetary policy between developed countries is running well so that bring minimal impact to developing countries including Indonesia,” he said as quoted by Anadolu Agency.

The IMF-WB meeting is very strategic for the synchronization of monetary policy as the meeting will be attended by 189 countries. He expected each country will give views on the monetary policy.

In addition, Warjiyo added there will be a meeting to discuss the global financial safety net in the WB-IMF meeting to protect developing countries from shake in the global economy. Furthermore, he hoped the discussion will improve the cooperation with the regional financial arrangement, including reforms in the IMF management.

Indonesia, according to him, will use the annual meeting to strengthen the international monetary system in facing global challenges and be able to safeguard the transition of the world economy while maintaining stability.

As known, The Federal Reserve lowered its benchmark interest rate by nearly 0 per cent due to 2008 financial crisis, followed by other countries such as EU to 0.25 per cent and Canada at 1 per cent. As a result, there is capital flow from the developed countries to the developing countries that have a higher interest rate.

The United States has been conducting normalizing monetary policy in the last two years, followed by other developed countries such as Europe and Japan. This year, The Federal will have another two to three more interest rate hikes.

This normalization of monetary policy will bring impact to the capital outflow for the developing countries, including Indonesia. Currently, Indonesia is dominated by foreign capital amounting to 40 per cent, making Indonesia’s economy is very volatile to the shake in the global economy.

Digital Economy

Furthermore, Warjiyo will bring digital economy issues in the IMF-WB meeting in Bali, especially the role to empower the small and medium enterprises (SMEs). In addition, the mitigation policy to minimalize the impact of the digital economy on the employment also be an important issue to discuss in the meeting.

“We also want to discuss the related digital payment system and fintech so that its development does not disrupt the banking sector,” he continued.

The McKinsey estimated Indonesia can earn up to US$150 billion in annual economic impact by 2025 by speeding up the digital economy. Google and Temasek Holding research showed that e-commerce markets in ASEAN have the potentials to grow to US$88 billion by 2025 from US$10 billion in 2017.