Bank Indonesia Says 5.4% Growth This Year Is Too OptimisticBy
Central bank deputy governor says 5.2% growth more realistic
Investment-grade score should serve as inspiration for reforms
Indonesia’s central bank said economic growth of 5.4 percent this year is too optimistic and the nation should aspire for higher credit ratings to catch up with Southeast Asian peers.
“In our view, the 2017 growth rate should be higher than 2016,” Bank Indonesia Senior Deputy Governor Mirza Adityaswara said in an interview in Jakarta on Friday. “Maybe 5.4 percent is still a bit too aggressive, but we think 5.1 percent to 5.2 percent is still a possible number to achieve in 2017.”
While Southeast Asia’s biggest economy is gradually recovering, it faces risks from a slowdown in China and weaker prices of coal and palm oil, the nation’s main commodity exports. President Joko Widodo, known as Jokowi, has pledged to boost growth to 7 percent during his term in office, but economists surveyed by Bloomberg predict expansion of under 5.5 percent until 2019.
Jokowi’s government has made inroads on some economic reforms, helping it win an investment-grade score from S&P Global Ratings this month. Despite its economic size, smaller neighbors including the Philippines, Thailand and Malaysia all enjoy higher ratings from S&P.
“We have to use the improvement in the credit rating to challenge ourselves to get further improvement,” Adityaswara said. Keeping the current account deficit under control is key, which means the nation needs to diversify into non-commodity exports and push for stronger tourism, he said.
Global funds poured a record $6 billion into rupiah securities this year, helping to drive Indonesia’s 10-year yield down by the most in Asia. Fitch Ratings and Moody’s Investors Service already rates the nation at investment grade and Goldman Sachs Group Inc. said in March an S&P upgrade may help attract as much as $5 billion in funds from Japan alone.
“Considering that the global situation is quite stable, what we can expect is funds from Japan, and also funds from maybe European and American pension funds that are purposely not in Indonesia yet to come," the deputy governor said.
Bank Indonesia has kept its benchmark interest rate unchanged at 4.75 percent for seven months, refraining from providing more stimulus to the economy after six rate cuts last year. Inflation accelerated to the highest in more than a year in April at 4.17 percent, above the mid-point of the bank’s 3 percent to 5 percent target band.
“The key for us is to maintain prudentiality in managing the macro,” Adityaswara said. “The government manages the fiscal prudentiality, while Bank Indonesia maintains prudentiality in the monetary policy, basically to make sure inflation is under control and the current account deficit is under control.”
Templeton Emerging Markets Group Executive Chairman Mark Mobius gave an upbeat assessment of Indonesia on Monday, saying the stock market continues to benefit from an improving growth outlook. The Jakarta Composite Index has gained 11 percent in the past six months.
“Despite all its problems with terrorism and so forth, the index keeps climbing simply because the economic picture looks so good," Mobius said in an interview in Singapore with Bloomberg TV’s Haslinda Amin. Indonesia would be more attractive to investors if Jokowi was able to do more to curb corruption and the influence of religious conservatism, he said.
Recent political events have undermined investor sentiment in Indonesia. Basuki Tjahaja Purnama, a close ally of Jokowi, lost a bid to become the first ethnic Chinese Christian to be elected governor of Jakarta after he was accused of blasphemy. He was subsequently found guilty and jailed for two years.