Indonesia Navigates Safely Through Uncertain Times

  • Growth forecast at 5 percent in 2016
  • External pressures buffeting the economy
  • Business climate, infrastructure, key to economic growth
  • Speaking to IMF Survey, IMF Mission Chief for Indonesia, Luis E. Breuer, credits good economic management and timely reforms, particularly on fuel subsidies, for Indonesia’s favorable prospects. The country is also well positioned to cope with a challenging external environment.

    But he noted that sustaining strong growth and development will require the government to push on, and even expand, its ongoing reforms to improve infrastructure, strengthen the business environment, and open up trade.

    IMF Survey : The IMF just finished its annual assessment of the Indonesian economy. How is the economy doing?

    Breuer: Indonesia’s macroeconomic performance was good in 2015. Despite the weaker external environment, economic growth remained among the highest in emerging market economies at 4.8 percent in 2015. Inflation fell to within the central bank’s target range (3-5 percent), and the current account deficit narrowed. Over the past few years, sound monetary management and a prudent fiscal stance have reinforced macroeconomic stability and supported growth.

    For 2016, we expect growth to pick up moderately to around 5 percent (see chart). The recovery will be driven by increased investment, especially, public sector spending on transport and energy.

    For the medium-term, Indonesia’s prospects are very favorable. Economic fundamentals are set to continue to improve, building further on Indonesia’s many assets—a young population, low public debt, large domestic markets, natural resource endowment, and a participatory and stable political system.

    IMF Survey : The global economic landscape is changing: lower commodity prices, China, increased volatility Can you speak about the impact on the Indonesian economy?

    Breuer: Indeed, the economic landscape is changing. And like many emerging market economies, Indonesia is facing pressures from the current shifts in the global economy, notably lower growth and rebalancing in China, sluggish commodity prices, and the beginning of monetary policy normalization in the United States.

    These shifts have impacted the Indonesian economy through three main channels: commodity prices, trade, and capital flows. They have led to a slowdown in growth in recent years—from the high rates during the commodity boom years—and tighter financing conditions. As a result, risks and...

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