The International Monetary Fund (IMF) expects Indonesia’s economy to expand 4.9 per cent year-on-year in 2016, slightly up from a 4.7 per cent in 2015. It said Indonesia has “safely navigated” challenges caused by the fall of commodity prices and China’s slower growth path, but the outlook could still worsen. “Risks to the outlook are tilted to the downside, mainly from external factors including more volatile global financial conditions, a deeper-than-expected slowdown in emerging market trading partners and further declines in commodity prices, requiring continued vigilance by policymakers,” the IMF said. In its annual policy review, the Fund said medium-term growth prospects are favorable, provided that Jakarta charts a course to more inclusive growth and takes steps to enhance financial system stability. The IMF Executive Board said that Indonesia’s tight monetary policy in 2015 helped to anchor inflation expectations, with headline inflation expected to remain within the target band of three to five per cent in 2016. But they urged a cautious approach to monetary easing. Indonesia’s central bank cut its benchmark interest rate in February by 25 basis points to 7 per cent. “While the recent easing is appropriate, (IMF directors) agreed that it should be gradual and cautious to safeguard financial stability, keep inflation within the target band and support external adjustment,” the IMF said, adding that bond yields should remain market-driven. The Fund applauded cuts in Indonesia’s energy subsidies in 2015 but warned that low oil prices were causing government revenues to underperform their targets. It said that this would require steps to diversify revenues so that the government can continue to make infrastructure and social investments to boost the economy’s growth potential.
