IMF sees stronger fiscal, monetary coordination
The Jakarta Post, Jakarta
The International Monetary Fund (IMF) foresees stronger coordination between the fiscal and monetary authorities in navigating Indonesia's economy through the high inflationary and high-interest rate environment.
"We met today (Friday) with the new economic team and we have strong confidence in the good policy coordination between the government and Bank Indonesia," IMF Deputy Director of the Asia and Pacific Department Daniel Citrin told a news conference on Friday.
Citrin, who ended a week-long visit in connection with the periodic, semester review of Indonesia's economy under the terms of the IMF post-program monitoring, was referring to his talks with the new chief economics minister Boediono, finance minister Sri Mulyani Indrawati and Bank Indonesia's Burhanuddin Abdullah.
He said he agreed with the immediate action agenda the new economic team would implement, including priming the economy and concrete measures to reinvigorate investment.
"It is important for the government to spend money next year. Hence, we don't have any disagreement with the government's plan to accelerate budget realization to bolster growth," added Citrin, who was accompanied by IMF senior resident representative here Stephen Schwartz.
He said the government had saved by slashing fuel subsidies and it was now time to inject the savings into the economy.
He understood, though, the tricky job of the central bank in gradually bringing down interest rates to support economic growth, but he agreed with the government's prediction that inflation could be brought down to between 8 percent and 9 percent next year from more than 18 percent (cumulative) this year.
"But we are highly confident about the fiscal sustainability even though the government's domestic and foreign debt service burdens will be much larger next year. After all, the fuel subsidies have been slashed and the government debt-to GDP ratio has declined to as low as 50 percent from more than 90 percent in 2001," he said.
The high interest rates will increase the interest costs of the government's bonds, while the foreign debt service burdens will also rise significantly next year because the government will no longer get debt-payment deferment from the Paris Club of sovereign creditors.
Citrin said given the steady decline in the growth of gross domestic product in the first three quarters -- from 6.2 percent, to 5.84 percent and 5.34 percent -- a trend that would most likely continue in the current last quarter, the growth for the whole year would only be slightly higher than 5 percent.
That growth level would be similar to last year's economic expansion of 5.13 percent but much lower than the government target of 6 percent.
"But I think the government growth target of 6.2 percent for next year is very difficult to achieve," he added.