BI Expects Higher Economic Growth in 2017

TEMPO.CO, Jakarta – Indonesian central bank, Bank Indonesia (BI), expects the economic growth of the country to be higher than the assumed 5.1 percent in 2017.

The growth assumption was made in the Draft 2017 State Budget, recently approved by the government and the Houses Budgetary Body.

“I see it as a conservative assumption. We hope that we can achieve a better condition in 2017,” Agus said, after a working meeting at the Parliament Building, on Tuesday night.

Agus said that the economic growth assumption made by the government from the previous 5.3 percent to 5.1 percent is in response to the global economic growth, which is predicted to remain slow.

“When the global economic growth is lowered to 3.1 percent, we must understand that Indonesia still needs time to recover so that it is lowered to 5.1 percent,” he said.

According to Agus, if private investments can be encouraged to contribute to the development in the country, it will be able to boost domestic economic growth too.

“The main challenges we are facing is in the private investment. If it could quickly rise, it would help in the economic growth in Indonesia,” Agus said.

Agus, who is also the former CEO of Bank Mandiri, also reminded that the government needs to pay attention to the Fed Funds Rate, which is predicted to rise gradually by the end of the year and continue to next year. In addition, the global economic growth is predicted to be relatively unfavorable and will still be a challenge.

“We do remain wary of the global trade, which has fallen dramatically. It needs to be watched,” Agus said.

In the meantime, as per the predictions of the World Bank (WB) early this month, Indonesias economy will witness a growth of up to 5.3 percent in 2017 and 5.5 percent in 2018, thanks to the stable economic conditions in East Asia and the Pacific in the last three years.

“In Indonesia, growth rates will increase gradually from 4.8 percent in 2015 to 5.5 percent in 2018,” Sudhir Shetty, World Bank Chief Economist for East Asia and the Pacific, said during a teleconference with reporters on October 5.

The growth forecast is highly dependent on three parameters, namely the presence or absence of the increase in public investment, success in the investment climate and an increase in revenues, he stated.

Indonesia, a country with a large market such as Thailand, Malaysia, and the Philippines, has a very high private sector credit growth.

“Therefore, Indonesia needs to strengthen its macro-prudential regulation and its micro-prudential risk management,” Shetty remarked.

Focus areas for reforms of macro and micro-prudential should include, among others, risk-based calculations, assessments on borrowers abilities, supervision on underwriting and capital adequacy, high reserve requirements, higher liquidity ratios, and the ratio of loan to value (LTV).

Meanwhile, World Bank Economist Masyita Crystallin mentioned that in the last few years, credit growth has shown trends of slowing down and therefore put Indonesia in a less worrisome situation.

“In fact, we support higher credit growth to encourage more investment in the future,” Masyita added.

Meanwhile, Indonesias foreign debts over the past three years were seen to have been reduced. Some 60 percent of Indonesias foreign debts are owned by foreigners and the remaining 40 percent by Indonesian citizens.