Financial Sector Reviews: Economy Remains ‘Normal’

Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – Indonesia’s economy remains in a ‘normal’ condition as shown by a number of indicators, including low inflation environment, strengthening stock market, modest lending growth and relatively stable exchange rate. The statement was made by the Financial System Stability Committee (FSSC) based on a quarterly assessment of the country’s economy.

FSSC is an institution responsible for avoiding financial crises, and consists of a selection of key policymakers from the Finance Ministry, Bank Indonesia, Financial Services Authority (FSA) and Deposit Insurance Corporation.

The committee conducts assessments on exchange rate performance, balance of payments, conditions of the capital, stock and bond markets, the fiscal situation, and the banking sector.

Indonesian Finance Minister Sri Mulyani Indrawati read out the result of this assessment on Tuesday (31 October) at a press conference.

As revealed by Statistics Indonesia, the inflation rate for calendar year (January-September) 2017 stood at 2.66 per cent and the year-on-year inflation rate (September 2017 to September 2016) is 3.72 per cent. Given the inflation rate as of October, the government’s full-year inflation target of 4.3 percent should be within reach.

Going forward, the FSSC further announced that it will boost efforts to enhance market confidence in Indonesia’s financial sector.

The Finance Minister said the Indonesian financial system is considered ‘stable’, supported by well-maintained economic fundamentals and positive perception in the Indonesian economy by market players.

‘This is shown by International Monetary Fund (IMF) upgraded revision for Indonesia’s economic outlook and improvement in banking intermediate performance; also performance from currency, government and corporate bond markets,’ said Minister Indrawati on Oct. 31.

She noted that although the economy is still stable, Indonesia’s economy is still facing ongoing external pressures, particularly sluggish global economic growth, led by U.S monetary policy that encourages capital outflow from Indonesia.

Indonesia’s banking sector is still struggling to increase its credit disbursement for the remaining months before year-end. Due to weak credit demand from Indonesian companies and individuals, the amount of good-quality loans has declined, while the amount of bad loans has increased.

FSA Chairman Wimboh Santoso said given the above circumstances, the FSSC is eager to boost market confidence in Indonesia. By signaling that the domestic economy is strengthening, the market should start to become confident again to engage in corporate or personal investment (for example companies are encouraged to invest in business expansion, and individuals are encouraged to purchase houses).

FSA recorded loan growth in Indonesia’s banking sector stood at a modest 7.8 per cent (YoY) at the end of September 2017, slowed down from August performance which showed 8.26 per cent. He is pessimistic that this rate will not change too much in the remainder of 2017.

‘We revised down our projection; credit will grow to 11 percent from 13 percent this year,’ Santoso said.

Companies are now particularly hesitant to secure foreign-denominated loans as sharp rupiah depreciation in the years 2013-2015 has been a major burden.

Meanwhile, Indonesia’s central bank recorded that the inflation rate remains under control until October. BI Governor Agus D.W Martowardojo stated the government and monetary authorities are working hand in hand to keep the inflation in line with a targeted 4 percent.

Written by Elisa Valenta, Email: