IMF: RI needs more reform for higher growth
IMF: RI needs more reform for higher growth
Dow Jones, Washington
The International Monetary Fund lauded Indonesia's progress in
economic reforms but also said that, for a sustained higher
growth, the country needs further efforts, such as banking
reforms.
In its annual economic report on the country, released here on
Sunday, the IMF executive directors welcomed continued progress
in Indonesia's economic reform efforts to overcome hardships that
originated in the 1997-1998 Asian financial crisis.
"Indonesia has made significant progress in strengthening
macroeconomic policies and implementing key areas of the
structural reform agenda," the directors noted in the report.
But they also cautioned that the nation's still incomplete
reforms have left it unable to "fully share in Asia's (ongoing)
recovery" and lagging "behind other countries in the region" in
the economic growth rate.
Though the IMF has kept its 4.8 percent growth forecast for
the country for 2004 (in line with the government's forecast),
unchanged from the latest projection in April, Indonesia's growth
"continues to be below potential, and investment and exports
remain weak," the report said.
In order to rise above the below-potential growth, Indonesia
needs to continue reform efforts, above all, those in the banking
sector, the IMF directors said.
They thus urged the Indonesian government "to maintain close
oversight of state-owned banks to strengthen their financial
position and ensure that their lending practices are in line with
sound banking standards," the report said, which was issued as
state-owned banks struggle to deal with lending scandals unveiled
recently.
Such efforts, combined with sound macroeconomic policies, will
help improve the environment for foreigners' investment, which is
"crucial" for the country to achieve higher growth, the report
said.
Indonesia's economy needs to grow by between 6-7 percent per
year in order to be able to provide enough jobs for the millions
of unemployed people and new job seekers.
Indonesia graduated late last year from the IMF's rescue
program that was launched during the Asian crisis, but still owes
US$10 billion to the international lender.
The IMF report did not make any reference to the recent spike
in the country's consumer price index and has left unchanged its
inflation forecast for 2004 at 5.0 percent.
The directors, however, urged the central bank "to maintain a
cautious monetary stance, particularly in light of the potential
for shifts in market sentiment" and the prospect of higher
interest rates abroad, the report said.
In April, the country's inflation rate jumped to 5.92 percent
from 5.11 percent a month earlier.
A stable inflation is key to the current stability in other
macroeconomic indicators as the relatively benign inflation
environment has allowed the central bank to keep cutting down
interest rate to allow the corporate sector obtain cheaper loans
and help ease the government's domestic debt burden.