The IMF has maintained its economic growth projection for Indonesia at 5 percent this year. (Antara Photo/Aditya Pradana Putra)

IMF Keeps Indonesia's Growth Projection but Warns of Global Pitfalls

OCTOBER 16, 2019

Jakarta. The International Monetary Fund has kept its economic growth projection for Indonesia at 5 percent this year and 5.1 percent next year, while issuing a warning that the global economy may see its slowest expansion since the global financial crisis in 2008-2009.  

The IMF recently cut its forecast for world economic growth in 2019 to 3 percent, down by 30 basis points from its April projection. The growth may pick up next year to 3.4 percent – still slower than its previous estimate of 3.6 percent – as improvements are expected in Latin America, the Middle East and in developing countries in Europe.

"With uncertain prospects for several of these countries, a projected slowdown in China and the United States and prominent downside risks, a much more subdued pace of global activity could well materialize," the IMF said in a statement on Wednesday. 

The fund said governments across the world need to be more decisive in defusing trade tensions and improving multilateral cooperation in order to reinvigorate growth.

IMF assumes the government of Indonesia would embark on a "moderate tax policy and administration reforms" as well as a "gradual increase in social and capital spending over the medium term."

The government is eyeing a growth of 5.2 percent this year, but has failed to meet its incremental targets in the past two quarters. It also expects a 5.3 percent expansion next year as it promises to spend more on education, unemployment and poverty support and infrastructure. 

Economists now expect Bank Indonesia, the country's central bank, to continue cutting its benchmark interest rate after making three cuts in the past three consecutive months in an attempt to prop up growth.  

Finance Minister Sri Mulyani Indrawati said on Wednesday the government will continue to put an emphasis on improving Indonesia's investment climate to stave off the impact of a global slowdown. 

"We understand global pressures are causing many businesses to recalculate their risks. You can see this in many indicators: foreign direct investment is declining while imports of raw materials and capital goods have been under pressure since last year," Sri Mulyani said. 

"The president [Joko "Jokowi" Widodo] wants to continue to encourage and facilitate investment in Indonesia. We, his ministers, will have to come up with a formula [that does just this], including by proposing new legislations to the House of Representatives," she said.