It seemed natural if the outcome of the Board of Governor of Bank Indonesia meeting on January 9, 2014 decided to maintain BI rate at 7.50% as a nice new year’s cadeau. It was so perceived because the decision brought positive sentiment to the banking sector and the real sector to expand. Not just that, BI also decided interest of lending facility and Deposit Facility at 7.50% and 5.75% respectively.
BI’s underlying consideration in giving this special gift was because overall economic evaluation of 2013 and economic prospect of 2014 - 2015 showed that the policy was still synchronous with the effort to control inflation toward 4.5% + 1% in 2014 and 4% + 1% in 2015 and to control Indonesia’s economic restoration and bring current transaction to a healthier level.
BI would also strengthen economic policy mix and macro-prudential policy and foster coordination with the Government in handling inflation and Deficit in Current Transaction [DTB] including the policy to restore economic structure. This commitment also brought positive sentiment to the money market amids restoration effort among advanced nations.
Evaluations concluded that the challenges faced by Indonesia’s economy in 2013 had not been ignorable due to the impact of global economic slowdown. Economy of the developed nations were revitalizing, on the contrary economic growth among the emerging markets were under correction. Previously uncertainty of global economic was mounting in line with Tapering Off by the Fed in the USA.
The latest development signaled recovery of global economic recovery being propelled by the USA and Japan, and signs of economic recovery in Europe, China and India, which was predicted to continue through 2014 to sustain Indonesia’s economy in the future, in trading or finance. The global economy which once slowed down, and the high cost of national economic stabilization effort had its impact on Indonesia’s economic growth process. Indonesia’s economic growth in 2013 was 5.7%, slowing down against 2012 at 6.2%.
Downturn of Indonesia’s economic growth was indicated by limited real export due to slowdown of global economy. In terms of domestic demand, investment growth, especially non-construction investment, was also slowing down. Meanwhile household consumption was still the main propeller of growth.
Bank Indonesia rated that the trend of economic slowdown was in parallel with stabilization effort of the Government and Bank Indonesia toward healthier and well balanced state. All in all, effective stabilization effort was balanced by economic growth 2013 which was still notably high compared to growth in other countries.
In 2014 economic growth was predictably better in the range of 5.8% - 6.2% in tandem with global economic recovery amids continued domestic economic consolidation process toward a well balanced condition. Meanwhile with the economic stabilization effort run by the Government and Bank Indonesia, development in quarter IV-2013 indicated pressures on Indonesia’s Balance of Payment was eased.
Deficit in current transaction was predicted to lessen thanks to surplus in trade balance and increased non oil-gas export; which was in line with bettered global economy. Besides, import of non oil gas commodities also lessened in line with domestic economic slowdown. BI rated the trend of improved Indonesia’s Balance of Payment was positive enough to stabilize economy and drive current transaction toward better position.
With betterment of Trade Balance, Indonesia’s Forex Reserves by December 2013 increased to USD 99.4 billion or equal to 5.4 month of import and payment of Government’s debt, above international standard of CAR of around 3 months import.
Improved Trade Balance with less deficit and increased forex reserves would support Rupiah value to be more stable with tendency to strengthen in time to come. Moreover inflation was also controlled, which was reflected in last year’s inflation at 8.38% which was below the past expectation of 9.2% - 9.8%.
In the future, predictably inflation would be controlled in the range of 4.5% + 1% 2014 and 4.0% + 1% in 2015. To secure the attainment of inflation target, BI would foster coordination with the Central Government and Regional Government through the inflation Controlling Team [TPI] and regional TPID team.
In the financial sector, stability of the financial system remained under control, with support of resilience of the banking sector till end of 2013. Amidst slowdown of domestic economy and Rupiah depreciation, performance of Indonesia’s financing sector especially the banking sector remained solid with risk in credit liquidity and market being safeguarded.
Credit growth tend to slow down from November 2013 was posted at 21.9% [y o y] was down compared to end of 2012 at 23.1% The downturn was influenced by steep downturn of Rupiah credit by 24.0 % by end of 2012 to become 20.0% in November 2013. Bank Indonesia rated that the credit was in line with economic slowdown and increase of domestic bank interest.
In the future, BI’s policy in 2014 would still be focused on stabilizing economy and finance through implementation of policy mix in monetary, macro prudential strategy, and payment system. In the monetary system, the strategy would be focused on controlling inflation and to control deficit in current transaction to a healthier level through bank interest strategy and Rupiah stabilization in accordance with its fundamental strength.
As this point, there were reasons to pin hope on this Wooden Horse Year to realize expectations with optimism as some main economic indicator were well under control since early this year. This was a good start to undergo 2014 which was packed with political risks. (SS)
Business News - January 15, 2014