IMF, govt ease base money target
The Jakarta Post, Jakarta
The International Monetary Fund (IMF) and the government agreed on targeting next year a base money growth of between 12 percent to 14 percent, easing down from this year's growth target of 12.5 percent.
Finance Minister Boediono said on Wednesday the new growth target was added to the draft of the fourth Letter of Intent (LoI) with the IMF.
"We will lower the base money supply, I think growth is set at between 12 percent to 14 percent," he told reporters.
The higher growth range reflects cautious optimism that pressure on the rupiah and inflation may fall next year.
It also lends hope that Bank Indonesia will lower its interest rates, a long awaited move by industries stifled with high lending rates.
Interest rates have been set tight to absorb liquidity in base money supply that otherwise could be used to speculate against the rupiah or stoke inflation.
Base money measures the stock of money in an economy including cash and deposits in savings and checking accounts. Too much money in relation to the output of goods tends to push interest rate down.
There has been growing calls for Bank Indonesia to lower domestic interest rate to help push economic growth and to ease the state budget burden in covering the coupon rate of government bonds.
The government and the IMF visiting mission agreed on Tuesday on a draft of the country's fourth LoI, which outlines the government economic targets and reform programs for next year. The draft of the LoI has yet to be unveiled to the public.
The government has projected economic growth of 4 percent next year, compared to this year's estimate of 3.5 percent; and inflation rate of 9 percent, compared to around 11 percent expected for this year.
Bank Indonesia Deputy Governor Miranda Goeltom said base money supply as of October had reached Rp 117.4 trillion (some US$11.25 billion). The central bank has targeted Rp 111 trillion.
Miranda predicted base money growth may hit 17.8 percent for the whole of this year, also far above its 12.5 percent target.
Elsewhere, Bank Indonesia one month promissory notes (SBI) ended flat at 17.59 percent from last week's rate at 17.58 percent.
Rates have been hovering at these levels for the past six weeks, as Bank Indonesia tries to absorb liquidity in the money market.
Other targets in the LoI draft included the revision of local regulations, the IMF deemed as hurting regional economies.
Director General for Fiscal Decentralization Machfud Sidik said the IMF identified some 100 local regulations that were in violation of the regional autonomy laws.
"Since regional autonomy came in to effect, businessmen have begun to complain about the surge of regulations impeding their investments," he was quoted as saying by Kompas.