JAKARTA (TheInsiderStories) – Indonesian financial regulators have pledged to prioritise stability in the short term over the economic growth target amid a rout in the currency even as the economy is still struggling to fire up.
The shifted focus likely a trade-off as Indonesia’s central bank is poised on Wednesday to lift rates for the second time this month as policymakers move aggressively to fend off further capital flight and prevent another potentially destabilising bout of currency depreciation, especially ahead of the US Federal Open Market Open Committee (FOMC) meeting on June 14, 2018.
The country’s economic growth is stuck at about 5.06 per cent, well below the 7 percent targeted by President Joko Widodo.
The government would accelerate reforms to support growth and would continue working with Bank Indonesia on a coordinated policy response to the current market turmoil. Government has set 5.1-5.4 per cent target of economic growth by 2019.
“If we have to make adjustments in the short run that will result in slightly lower growth, that’s a consequence that we will take,” said Minister of Finance Sri Mulyani on Monday (28/5).
Indonesia’s government also set strategy to improve debt management and governance of its state-owned enterprises (SOEs) as part of several measures to maintain economic stability.
Sri Mulyani said the government is currently trying to boost the economic growth momentum whose contribution comes from investment and exports.
For that purpose, several steps were taken to strengthen the external balance and minimize the current account deficit that is still affected by the high import of goods and services.
These measures include building infrastructure, providing business facilities, improving customs systems and providing tax incentives to encourage industrial investment from upstream to downstream.
These structural reform efforts can increase competitiveness, boost productivity, improve climate and ease of investment and strengthen the real sector structure. She added that the government will continue to manage the 2018 state budget implementation to be more credible and adequate so that fiscal instruments can be relied upon to maintain stability and sustainability of the development process.
With these efforts, she hopes that there will be an increase in investment and export performance that can support economic growth in the medium term.
Healthy and sustainable economic growth is needed, because the government in the short term is making adjustments to macro policies that are impacted by external pressures.
Bank Indonesia on May 17 raised its benchmark interest rate IDCBRR=ECI for the first time since November 2014 in a bid to bolster the fragile rupiah and stem capital outflows.