indonesia–recent macroeconomic developments and near-term ... · strengthen fundamentals...

Indonesia–Recent Macroeconomic Developments and Near-Term Developments and Near Term

Prospects

D A V I D C O W E N

I M F M I S S I O N C H I E F F O R I N D O N E S I A

A S I A A N D P A C I F I C D E P A R T M E N T

M A R C H 2 6 , 2 0 1 4

T O K Y O1

Overview

Global and Emerging Market Developments

Managing the Tapering Environment

Developments in Indonesia and Outlook Developments in Indonesia and Outlook

Policy Framework Going Forward

2

I. Global and Emerging Market Developmentsg g p

Latest trends:Latest trends: Growth in advanced economies (AEs) and emerging markets

(EMs) has been broadly in line with the January 2014 WEO (EMs) has been broadly in line with the January 2014 WEO update.

Commodity prices: Oil firming on heightened geopolitical y p g g g prisk; food prices also pushing higher, but metal prices softening further.

Financial conditions are tightening in most AEs and EMs, but more so in the latter.

i k i h k l i Emerging market economies that took early action to strengthen fundamentals generally weathered January’s financial turmoil better (e.g. Indonesia).

3

financial turmoil better (e.g. Indonesia).

Indonesia: Growth Componentsp

Contribution to Real GDP Growth(I t )

7.5

8.0

8

10

(In percent, year-on-year)

6.5

7.0

4

6

5.5

6.0

0

2

4.5

5.0

-4

-2

Private consumption Government consumptionInvestment Net exports

4.0-6

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Change in stocks Statistical discrepancyReal GDP growth (in y/y percentage change, right scale)

Sources: CEIC Data Company Ltd.; and IMF staff estimates.

4

Commodity Price Trendsy

Key Commodity Prices

350

Oil Gas Rubber products Palm oil Coal

Key Commodity Prices(2007Q1=100)

WEO Proj.

250

300

150

200

50

100

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

2011

Q1

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

Sources: IMF Commodity Price System database; and staff estimates and projectionsSources: IMF, Commodity Price System database; and staff estimates and projections.

5

Indonesia: Financial Conditions and Flows

Net Foreign Portfolio Flows(In billions of U S dollar cumulative since the

Financial Conditions(end 2012 100)

8

10Government rupiah bond flow

Equity flows

(In billions of U.S. dollar, cumulative since the beginning of 2013)

11140Nominal exchange rate (US$/rupiah)Jakarta stock index

(end 2012 = 100)

6

8 Equity flows

Total flows

9

10

120

130Jakarta stock indexBI policy rate (right scale)10-year treasury bond yield (right scale)

2

4

7

8

100

110

In p

erce

nt

-2

0

5

6

80

90

-4

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14470

Jan-

13

Feb-

13

Mar

-13

Apr-

13

May

-13

Jun-

13

Jul-1

3

Aug-

13

Sep-

13

Oct

-13

Nov

-13

Dec

-13

Jan-

14

Feb-

14

Mar

-14

6Source: Bloomberg L.P.

F M A M J A S O N D F M

Source: Bloomberg LP; and IMF staff estimates.

Emerging Market Developments (1)

Ten-Year Local Currency Bond Yields(Change in basis points)

Exchange Rates against the U.S. Dollar(Percentage change + appreciation)

g g p

350

400

450

350

400

450Dec 31, 2012-May 22, 2013May 22, 2013-Dec 31, 2013Year-to-date since 2014

(Change, in basis points)

5

10

5

10

(Percentage change, + appreciation)

200

250

300

350

200

250

300

350

-5

0

-5

0

ciat

ion

0

50

100

150

0

50

100

150

-15

-10

-15

-10

+ap

prec

-150

-100

-50

-150

-100

-50

es a a a d a a a y y d a e o il

-25

-20

-25

-20

ea es ia nd ia ia ia ry ey ca nd le ia co zil

Dec 31, 2012-May 22, 2013May 22, 2013-Dec 31, 2013Year-to-date since 2014

Phili

ppin

eM

alay

siIn

diKo

reTh

aila

n dIn

done

si

Russ

iSo

uth

Afric

Turk

eH

unga

rPo

land

Colo

mbi

Chil

Mex

ico

Braz

Source: Bloomberg L.P.

Kore

Phili

ppin

eM

alay

sTh

aila

nIn

dIn

done

s

Russ

Hun

gar

Turk

eSo

uth

Afric

Pola

n

Chi

Colo

mb

Mex

i cBr

az

Source: Bloomberg L.P. Source: Bloomberg L.P.

7

Emerging Market Developments (2)g g p ( )

Equity Prices(Local currency returns in percent)

Five-Year Sovereign CDS Spreads(Change in basis points)

30

40

30


(Local currency returns, in percent)

100

120

140

100

120


(Change, in basis points)

10

20

10

20

60

80

100

60

80

100 Year-to-date since 2014

-20

-10

0

-20

-10

0

0

20

40

0

20

40

-40

-30

-40

-30

ia es ia nd ia ea ca nd ey ry ia ia le co zil

-60

-40

-20

-60

-40

-20

nd ea sia es sia

sia ey ca nd ry ile co bia zil

Indo

nes

Phili

ppin

eIn

dTh

aila

nM

alay

sKo

re

Sout

h Af

ricPo

lan

Turk

eH

unga

rRu

ss

Colo

mb

Chi

Mex

icBr

az


Thai

lan

Kore

Mal

ays

Phili

ppin

e

Indo

nes

Russ

Turk

e

Sout

h Af

ric

Pola

n

Hun

ga Chi

Mex

ic

Colo

mb

Braz


8

Source: Bloomberg L.P. g

Emerging Market Developments (3)g g p (3)

Policy Rates (I )

Reserves

6

8

12

14(In percent)

Change from May 2013-December 2013 (right scale)Change from end-2012-May 2013 (right scale)Current policy rateLatest CPI inflation (y/y percent change)

14

16

20

25 Change from May 2013-December 2013Change from end-2012-April 2013Change in 2014 (year-to-date)End-2013 reserves (in months of imports, right scale)

2

4

6

8

10(y/y p g )

8

10

12

5

10

15

s of

impo

rts

age

chan

ge

2

0

2

4

4

6

8

-5

0

5

In m

onth

s

In p

erce

nt

-4

-2

-2

0

nesi

a

pine

s

aysi

a

Kore

a

iland

urke

y

Russ

ia

Afric

a

ngar

y

olan

d

Braz

il

Chile

exic

o

mbi

a0

2

-15

-10

nes

ysia

ndia

and

rea

esia

key

ssia ary

rica

and

hile

mbi

aaz

ilxi

co

Indo

Phili

p p

Mal K

Tha T u R

Sout

h A

Hun Po

B

Me

Colo

Sources: CEIC Data Company Ltd; Haver

Phili

ppin

Mal

ay InTh

aila Ko

Indo

n e

Turk

Rus

Hun

gSo

uth

Afr

Pola Ch

Colo

m BrM

e x

Sources: IMF, International Financial Statistics; Analytics; and IMF, WEO database.

9

and WEO database.

EMs and Indonesia: Yield and CDS Spreadsp

External Bond and Credit Default Swap Spreads

600Indonesia 5 year CDS Spread EM 5 Year CDS Spread Index

p p(In basis points)

400

500 Global EMBI Spread Indonesia EMBI Spread

200

300

100

200

0

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep-

12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep-

13

Nov

-13

Jan-

14

Mar

-14

10

S N J M M S N J M M S N J M


III. Managing the Tapering Environment

Recent Policy Measures: Since May 2013, a series of policy measures (summarized below) have been taken to Recent Policy Measures: Since May 2013, a series of policy measures (summarized below) have been taken to strengthen macroeconomic fundamentals and maintain financial stability, as well as reduce external vulnerabilities.

Monetary policy and liquidity management

Bank Indonesia (BI) has:( )

Raised both the policy rate and the overnight deposit facility rate (bottom of interest rate corridor) starting in June 2013 by a total 175 bps to 7.5 percent and 5.75 percent, respectively.

Shortened the minimum holding period for central bank bills (SBIs) from six months to one month in September.

Introduced tradable central bank rupiah deposits at one- and six-month tenors in September to facilitate interbank p p pmoney market development .

Introduced in December a mini master repo agreement (among a group of large domestic banks) to stimulate collateralized interbank lending.

Exchange rate policy and foreign exchange market operations

Shifted to a more flexible exchange rate policy framework in mid 2013 to encourage more market activity.

Improved the functionality in the foreign exchange market, supported by market deepening measures by BI since the second half of 2013.

Macroprudential controls

Tightened loan-to-valuation (LTV) limits on mortgages for second and third residential properties in September 2013.

Raised the secondary reserve requirement (RR) in September (fulfilled by banks’ holding of treasury and BI securities) f b h d i b b l i h d h l d i i ( ) li k dfrom 2.5 percent to 4 percent, to be phased in by December 2013; also tightened the loan-to-deposit ratio (LDR) linked RR .

11

Recent Policy Measures (concluded)y ( )

Fiscal policyp y Increased subsidized petrol price by 44 percent and subsidized diesel price by 22 percent in mid-June 2013, and

approved in the revised 2013 budget a temporary cash compensation scheme for vulnerable groups. Raised electricity tariffs on average 15 percent in 2013. Raised liquefied petroleum gas prices 17 percent in January 2014.

Announced in August the allowance of temporary deductions and deferred payments of income tax for the rest of 2013 for certain labor-intensive and export-oriented industries.

Other measures Relaxed regulations in August on bonded zones through simplification of licensing procedures and increasing the

allocation of certain goods for local sale. Changed the mechanism for importing beef and horticultural products in September 2013, moving away from strict

t t t th t ill h lt i t h th d ti i f ll b l th f i d ll i t t quotas to a system that will halt imports when the domestic price falls below the reference price and allow imports to resume if the domestic price exceeds the reference price.

Revised the negative investments list (DNI) in December, raising the level of foreign ownership in a number of sectors including transportation terminals, seaports and power plants, albeit tightening restrictions in farming and logistics and clarifying restrictions in telecommunications.

But also:

Implemented a scheduled ban on exports of unprocessed mineral ores in January 2014. For exports of six forms of mineral concentrates, including copper, continue to allow, subject to a special export tax that would increase to 60 percent in 2016, to encourage full in-country processing by 2017.60 percent in 2016, to encourage full in country processing by 2017.

Passed a new Trade Law in February that gives the government greater authority to restrict export and import activity with a view to secure domestic supplies and manage prices.

Swap lines A bilateral swap arrangement (BSA) with Japan was extended in August 2013 while BSAs with China and Korea were

12

A bilateral swap arrangement (BSA) with Japan was extended in August 2013, while BSAs with China and Korea were agreed in October.

Risk Factors for Outlook on Indonesia

Surges in global financial market volatility leading to economic and financial stress in EMsand financial stress in EMs

Protracted period of slower growth in emerging economies Protracted period of slower growth in emerging economies (notably China)

Geopolitical factors adversely affecting energy prices

Domestic factors

13

Indonesia: Recent Investment Trends

Contribution to Imports GrowthContribution to Real Investment Growth

6

8Consumer goodsRaw materialsCapital goods


12

14 BuildingDomesticForeign


4

6 Oil and gasImports, in U.S. dollar terms

8

10

12 ForeignReal gross fixed investment

0

2

4

6

-2

0

-2

0

2

-42010 2011 2012 2013

Sources: CEIC Data Company Ltd ; and IMF

-42010 2011 2012 2013

Sources: CEIC Data Company Ltd ; and IMF

14



Emerging Market Yields and Portfolio InflowsEmerging Market Yields and Portfolio Inflows

Bond Flows from AMs to EMsEmerging Market Bond Yields

6

(percent of AM’s GDP)

18EM foreign currency fixed i

(percent)

4

5

$480 bn

14

16 incomeEM local currency government bondIndonesia 10-year bond yield

3

10

12

1

2

Long term trend6

8

042007 2008 2009 2010 2011 2012 2013 2014

15

Source: IMF staff estimates.Sources: Bloomberg L.P.

Indonesia: Direction of Trade (Exports)p

Total Export Destinations, 2002 Total Export Destinations, 2013 est.

Japan Japan

Chi

24%18%

China

United States 15%20%

China

United States

24%

6%9%

EU

India12%

13%

EU

India

15%

7%11%

8% Singapore

Korea, Rep. of

9%

9%9%

6%

Singapore

Korea, Rep. of

3%

ASEAN

Others

7%9%

ASEAN

OthersOthers

16

III. Developments in Indonesia and Outlookp

Si th A ti l IV C lt tiSince the Article IV Consultation: Growth in 2013 performed better than expected on a stronger

contribution of net exports but with possible one-off factorscontribution of net exports, but with possible one off factors.

Inflation came in lower than projected at end 2013, as policy tightening and moderating demand pressures kept expectations well tightening and moderating demand pressures kept expectations well anchored, with food prices contributing less than expected.

The external current account deficit was slightly lower than g yforecasts, given a sizable rupiah depreciation and unexpected reversion to a trade surplus in Q4 2013.

Reserves were considerably higher than expected at end 2013, as foreign investors took a favorable turn, with exchange rate and bond yield flexibility and improved market functionality supporting

17

yield flexibility and improved market functionality supporting.

Macroeconomic Performance and Outlook

Indonesia: Selected Economic Indicators, 2012-14

2012 2013 2014Est. Art. IV Est. Art. IV

Real GDP (percent change) 6.3 5.4 5.8 5.3 5.3Domestic demand 8.0 5.0 5.1 4.9 4.3

Proj. 1/

Net exports 2/ -1.6 1.1 2.1 1.2 1.5

Prices (12-month percent change)Consumer prices (end period) 3.7 9.5 8.1 6.0 5.5Consumer prices (period average) 4.0 7.2 6.4 7.6 6.2

Public finances (in percent of GDP)Public finances (in percent of GDP) Central government balance -1.9 -2.5 -2.3 -2.5 -2.5Central government revenue 16.3 16.0 15.7 16.0 16.0Central government expenditure 18.1 18.4 18.0 18.5 18.5

Balance of payments (in billions of U.S. dollars)Current account balance 24 4 30 4 28 5 27 6 23 6Current account balance -24.4 -30.4 -28.5 -27.6 -23.6(in percent of GDP) -2.8 -3.5 -3.3 -3.2 -2.9

Overall balance 0.3 -17.2 -7.3 -9.0 1.0

Gross reservesIn billions of U.S. dollars (end period) 112.8 88.7 99.4 79.7 100.4In months of imports of goods and services 6 4 4 9 5 6 4 1 5 4In months of imports of goods and services 6.4 4.9 5.6 4.1 5.4

Sources: Data provided by the Indonesian authorities; and IMF staff estimates and projections.

1/ Based on January 2014 World Economic Outlook ( WEO) update. Latest projecitons will be relasead in the April 2014 WEO.2/ Contribution to GDP growth (percentage points)

18

2/ Contribution to GDP growth (percentage points).

Growth and Inflation Outlook: Discussion PointsGrowth and Inflation Outlook: Discussion Points

Investment—a stronger or weaker outlook?

Over the last decade, the main driver of cyclical growth in investment has been foreign entities.

Headwinds this year are higher borrowing costs, tighter bank liquidity, and rising leverage ratios.

However, stronger overseas corporates (including Japan) and diversification away from other EM ll l ti i th ti li t d th i ti ld l d tEMs, as well as relaxations in the negative list and other incentives, could lend some support.

Trade—are recent improvements durable?

The recent improvement in the trade balance is due to a decline in imports (raw materials and capital goods) and some pickup in exports capital goods) and some pickup in exports.

The return to positive growth in exports should be watched closely, in light of front-running of unprocessed mineral ore exports and less supportive growth conditions in major EMs.

At the same time, signs exist of an incipient recovery in manufacture exports associated with , g f p y f pstronger demand from advanced economies.

Inflation—how benign are conditions?

On the one hand, profit margins may be squeezed from higher input and borrowing costs and li k i i h i h i h ill i d i d d i i fi i i earlier weakening in the rupiah, with still-supportive domestic demand giving firms some pricing

power.

On the other hand, the rupiah’s recent strengthening could help further contain pressures.

19

Recent Economic Activityy

Purchasing Managers' Index (PMI) and Industrial Production

Retail and Transport Sales and Consumer Sentiment

30

40

55

60 PMI (manufacturing, from April 2011)

Industrial production (y/y, in percent, right scale)

Industrial Production

140

80

100 Consumer confidence index: expectations (index, right scale)Retail sales

Sentiment(Year-on-year percent change)

10

20

50

55

eutr

al

sca e)Industrial production (3-month percent change of 3 mma, s.a.a.r., right scale) 130

40

60

80Motor vehicle sales

Motorcyle sales

-10

045SA

, 50=

n

110

120

0

20

-30

-20

35

40

100

110

-40

-20

0 0 0 0 1 1 1 1 2 2 2 2 3 3 3 3 4

Feb-

10

Jun-

10

Oct

-10

Feb-

11

Jun-

11

Oct

-11

Feb-

12

Jun-

12

Oct

-12

Feb-

13

Jun-

13

Oct

-13

Feb-

14

Sources: Haver Analytics; and CEIC Data

Feb-

10M

ay-1

0Au

g-10

Nov

-10

Feb-

11M

ay-1

1Au

g-11

Nov

-11

Feb-

12M

ay-1

2Au

g-12

Nov

-12

Feb-

13M

ay-1

3Au

g-13

Nov

-13

Feb-

14

Sources: CEIC Data Company Ltd.Company Ltd.

20

Inflation Developmentsp

Contributions to CPI Inflation

9

10Administrative prices Volatile food prices Core

Contributions to CPI Inflation(In percentage points of headline inflation)

6

7

8

9

Headline (in percent) Core inflation (y/y)

4

5

6

1

2

3

0

Feb-

10

May

-10

Aug-

10

Nov

-10

Feb-

11

May

-11

Aug-

11

Nov

-11

Feb-

12

May

-12

Aug-

12

Nov

-12

Feb-

13

May

-13

Aug-

13

Nov

-13

Feb-

14

21

Sources: CEIC Data Company Ltd; and IMF staff calculations.

External Developments and Outlookp

Current Account Balance and Gross Reserves Current Account Balance and Scenarios

140

150

8

10 Net non oil and gas tradeNet oil and gas tradeOther itemsCurrent account balance

(In percent of GDP, unless otherwise indicated)

0

1

CA (Baseline)

Current Account Balance and Scenarios (In percent of GDP)

120

130

4

6

Current account balanceGross reserves (in months of imports)Gross reserves (US$ billions, right scale)

-1

0

CA (Stronger rupiah; 10,000 Rp/USD, e.o.p )

CA (20% fall in non-O&G

100

110

0

2

-3

-2commodity prices)

70

80

90

6

-4

-2

5

-4

70-6

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Sources: CEIC Data Company Ltd ; and IMF staff estimates

-52010 2011 2012 2013 2014 Proj.


22

Sources: CEIC Data Company Ltd.; and IMF staff estimates. Sou ces: C C ata Co pa y td.; a d sta est ates.

Fiscal Developmentsp

Central Government Overall and Primary Balance

0

2

3

(In percent of GDP)

1

0

1

2

2

3-2

-1

0

4

-4

-3

2

Overall balancePrimary fiscal balanceEnergy subsidies (right scale)

5-5

4

2008 2009 2010 2011 2012 2013Est

Energy subsidies (right scale)

23

Est.Sources: Indonesian authorities; and IMF staff estimates and projections.

Tax Revenues and Fuel Subsidies

Fuel PricesTax Revenue

12,000IDN gasoline (88 premium, subsidized)

Fuel Prices(In rupiah per liter)

Tax Revenue(In percent of GDP)

9 000

10,000

11,000 IDN gasoline (92 pertamax)IDN diesel (high speed, subsidized)

7,000

8,000

9,000

5,000

6,000

4,000

Feb-

10M

ay-1

0Au

g-10

Nov

-10

Feb-

11M

ay-1

1Au

g-11

Nov

-11

Feb-

12M

ay-1

2Au

g-12

Nov

-12

Feb-

13M

ay-1

3Au

g-13

Nov

-13

Feb-

14

Sources: CEIC Data Company Ltd ; andSources: CEIC Data Company Ltd.; and Statistics Singapore.

24

Monetary Developmentsy p

Monetary Policy and Interbank Rates(In percent)

Monetary Aggregates and Loan-to-Deposit R ti

7.5

8.0

(In percent)

10050 Net foreign assetsNet domestic assetsM2

Ratios(Contribution to growth, year-on-year)

6 0

6.5

7.0

80

90

30

40M2Private sector credit (y/y)Private sector credit (y/y, at Dec. 2012 ER)Loan-to-deposit ratio

5.0

5.5

6.0

60

70

10

20

3.5

4.0

4.5

Interest rate corridorLending facility BI rate

50

60

0

10

3.0

Mar

-10

Jun-

10Se

p-10

Dec

-10

Mar

-11

Jun-

11Se

p-11

Dec

-11

Mar

-12

Jun-

12Se

p-12

Dec

-12

Mar

-13

Jun-

13Se

p-13

Dec

-13

Mar

-14

Lending facility BI rateO/N JIBOR Deposit facility

40-10Fe

b-10

Apr-

10Ju

n-10

Aug-

10O

ct-1

0D

ec-1

0Fe

b-11

Apr-

11Ju

n-11

Aug-

11O

ct-1

1D

ec-1

1Fe

b-12

Apr-

12Ju

n-12

Aug-

12O

ct-1

2D

ec-1

2Fe

b-13

Apr-

13Ju

n-13

Aug-

13O

ct-1

3D

ec-1

3

25Source: CEIC Data Co., Ltd.

A A A A

Sources: CEIC Data Company Ltd; and IMF staff estimates.

Foreign Exchange Market Activityg g y

Spot Foreign Exchange Market Turnover by Counterparty

Indicators of Foreign Exchange Market Liquidity(M thl i i h U S d ll )

4,000

4,500

Domestic banks

Counterparty(Daily average, in millions of U.S. dollars)

500

70

801 month implied rupiah/US$ volatility (left scale)

1 month NDF spread (left scale)

(Monthly average, in rupiah per U.S. dollar)

3,000

3,500

,Overseas banks

Other customers400

50

60Closing bid-ask spread (left scale)

Daily high bid-low ask spread (right scale)

2,000

2,500

200

300

20

30

40Periods of onshoreFX illiquidity

500

1,000

1,500

100

10

0

10

0

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-140-20

-10

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep-

10N

ov-1

0Ja

n-11

Mar

-11

May

-11

Jul-1

1Se

p-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep-

12N

ov-1

2Ja

n-13

Mar

-13

May

-13

Jul-1

3Se

p-13

Nov

-13

Jan-

14M

ar-1

4

26Sources: CEIC Data Co., Ltd.; and IMF staff estimates.

M N M N M N M N

Sources: Bloomberg L.P.; and IMF staff estimates.

IV. Indonesia Policy Framework Going Forward V. do es a o cy a ewo Go g o wa d

Macroeconomic policies Macroeconomic policies The current monetary stance appears broadly appropriate, assuming

inflation expectations remain well anchored and credit growth continues to moderatecontinues to moderate.

A more flexible monetary and exchange rate framework put in place since late 2013 has helped improve policy transmission and deepen market activity.y

Fiscal deficit reduction in line with budget targets would help support external adjustment, contain borrowing costs, and reduce vulnerability to funding shocks.

Structural reforms—three objectives Diversify the exports away from the resource sector. Further deepen financial markets growing the domestic investor Further deepen financial markets, growing the domestic investor

base. Create conditions for far-reaching employment generation.

27

Thank you

(see http://www.imf.org/external/pubs/cat/longres.aspx?sk=41129.0

for the 2013 Article IV Consultation Staff Report on Indonesia)

28

indonesia–recent macroeconomic developments and near-term ... · strengthen fundamentals...

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