Bank Indonesia Upbeat on Growth But Not All Agree

BY :RIDHO SYUKRA & TABITA DIELA

JANUARY 28, 2015

Jakarta. The central bank expects Indonesia’s economic growth to accelerate this year despite challenges ranging from lower commodity prices to higher interest rates, its governor said on Tuesday.

Bank Indonesia Governor Agus Martowardojo said the domestic economy may expand by 5.8 percent this year, an increase from the bank’s estimate of last year’s growth of between 5.1 percent and 5.5 percent.

Agus said that “structural reform” in 2015, including efforts by the government to enhance production of goods and add value to the nation’s natural resources, will help boost exports and reduce the current-account deficit.

“Bank Indonesia, estimated the current-account deficit in 2015 will be in a range of [between] 2.5 percent [and] 3 percent [of gross domestic product],” Agus said at the Mandiri Investment Forum on Tuesday, which gathered investors, bankers and financial planners in Jakarta.

The current account is an important indicator of a country’s economic health as it affects a country’s currency exchange rate. A country is in a current-account deficit when it imports more goods, services and capital than it exports.

Indonesia has seen its current-account deficit narrow in recent quarters. In the third quarter of 2014, the deficit stood at $6.8 billion, or 3.07 percent of gross domestic product, compared to $8.7 billion or 4.06 percent of GDP, the previous quarter.

Indonesia’s economy expanded by 5.01 percent in the third quarter last year over the corresponding period in 2013, marking the country’s slowest growth in five years, owing to a downturn in exports amid a slowing global economy last year.

The central bank’s key interest rate has gradually increased from a record low 5.75 percent in 2013 to 7.75 percent now, a sizeable burdens on firms attempting to service their debts.

Bank Indonesia’s 2015 economic growth projection is much more upbeat than multilateral lenders.

Last December, the World Bank lowered its projection for Indonesia’s economic growth to 5.2 percent from its previous estimate of 5.6 percent in October.

The Finance Ministry has also has lowered its estimate for economic growth in the latest 2015 draft budget assumption to 5.7 percent, from 5.8 percent previously.

Finance Minister Bambang Brodjonegoro, also present at the investment forum, said the improving outlook for global economic growth this year is expected to help Indonesia’s economy.

He said Europe’s quantitative easing, in which the European Central Bank will embark on an expanded stimulus program that involves asset purchases of 60 billion euro ($68 billion) a month in an effort to revive the zone’s struggling economy.

Bambang also said the International Monetary Fund has revised its global economy growth forecast to 3.5 percent for 2015 growth from 3.8 percent previously. The IMF estimated 2014 world economic growth at 3.3 percent.

Investor Daily, GlobeAsia

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