The International Monetary Fund has yet to see financial contagion from the current monetary tightening in the United States and Europe and rising uncertainty in global trade reaching some emerging markets, including Indonesia, its managing director, Christine Lagarde, said on Thursday. (Reuters Photo/Johannes P. Christo)

Indonesia's Economic 'Scorecard Excellent,' No Emerging-Market Contagion Yet: IMF Chief

OCTOBER 13, 2018

Nusa Dua. The International Monetary Fund has yet to see financial contagion from the current monetary tightening in the United States and Europe and rising uncertainty in global trade reaching some emerging markets, including Indonesia, its chief said on Thursday.

"Some countries have the right fundamentals, have worked hard on their policy mix over the last few years, and are in a strong position, which is why we believe that we are not seeing what is referred to as 'contagion,'" IMF managing director Christine Lagarde Lagarde said.

She said tightening monetary policy in the United States and soon in Europe has increased the cost of financing for some emerging markets, which translated to currency fluctuations and capital outflows.

The IMF's latest global financial stability report warns that there is a 5 percent chance that emerging markets would see a combined $100 billion net capital outflows over a course of four consecutive quarters.

While experiencing net sales in its stock and bond markets by foreign investors so far this year, Indonesia still recorded a net capital inflow, thanks to robust direct investment and a healthy level of foreign borrowing.

Lagarde said Indonesia has the ideal policy response to current global volatility and could afford to remain calm despite the rupiah having depreciated by more than 12 percent against US dollar so far this year.

"If you look at the exchange rate, which, granted, has depreciated relative to the dollar, but so have other currencies, including Australia, including New Zealand, by roughly the same amount," she said.

Indonesia's current foreign-exchange reserves of $115 billion is a "massive improvement" compared with what the country had during the 1997 Asian financial crisis that forced it to borrow from the IMF.

The country's banking sector has also been massively restructured over the past two decades, Lagarde said.

The Indonesian economy is expected to expand by 5.1 percent this year and next year, while keeping inflation at a low level, the IMF said in its report on Tuesday.

The country has a very good track record in enforcing its fiscal rules, such as keeping the state budget deficit under 3 percent of gross domestic product, and maintaining both public and private foreign debt at 17 percent of GDP, Lagarde said.

"Look at Indonesia and compare to where it was at the time of the financial crisis; there has been significant improvement," the IMF managing director said.

Today, "Indonesia's scorecard is excellent," she added.

"I would hope that there continues to be that appreciation of good policies, good discipline and a determination to steer the economy, rather than to let it drift," Lagarde said.

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