IMF upgrades economic growth target
The Jakarta Post, Jakarta
The International Monetary Fund (IMF) is upbeat on this country's economy, saying it could expand even more than predicted, due mostly to a favorable market response to the peaceful general elections and the new government's policy intentions.
Upon the completion of its visit to Indonesia, the second of the year under the post-program monitoring (PPM) scheme, an IMF team concluded on Friday that the economy could end up with a fully year growth rate of 5 percent this year, greater than its earlier projection of 4.8 percent.
"While GDP growth is still below Indonesia's potential, and unemployment remains high, economic performance has continued to improve in recent months and financial markets have rallied," the IMF said in a statement.
"This improvement has come through continued sound policy implementation and a favorable market response to the peaceful election outcome and policy intentions announced by the new government."
The IMF team -- led by Daniel Citrin, deputy director of IMF's Asia and Pacific Department -- arrived here last week for a nine- day visit to discuss various issues, notably the economic policies with top government officials, legislators, business leaders and others.
The visit is part of the twice-a-year regular dialogs between the IMF and the country under the PPM system -- a program applied to an IMF member nation after it completes a lending program. The country completed its four-year, US$5 billion-loan package with the IMF by the end of last year.
They added in the statement that the team was ultimately impressed with the new government's emphasis on maintaining macroeconomic stability, while also "moving ahead forcefully with structural reform to improve the investment climate."
The economy, as measured by some US$208 billion of GDP, has expanded by 5.03 percent in the third quarter year-on-year as compared to 4.54 percent in the previous quarter, data from the Central Statistics Agency (BPS) shows.
Despite these positive signs, the economy has been mainly driven by consumption -- which makes up about 70 percent of GDP -- as investment has yet to live up to expectations and lags behind as compared to progress made by neighboring countries.
BPS said that investment grew 13 percent in the third quarter from the same period last year.
Indonesia is in dire need of foreign investment if it is to generate enough economic growth to absorb the arrival of new workers, estimated at around 2.5 million each year, or even reduce existing unemployment of some 40 million.
On Thursday, the government maintained this year's growth target at 4.8 percent, but revised upward its prediction for next year from 5.4 to 5.5 percent -- which would be the highest rate over the past nine years.
Focus of discussion during IMF visit:
* Infrastructure: Stressing the importance of upgrading the nation's infrastructure, including the power sector, roads and transportation. * Legal and Judicial reform: Seeking ways to increase the effectiveness of the Corruption Eradication Commission, establish an effective Judicial Commission and implement the blueprint on the Commercial Court. * Labor market flexibility: Easing and clarifying severance pay requirements and regulations on contracting and outsourcing.