ECONOMY IMF lowers RI growth target amid uncertainty

JAKARTA. The International Monetary Fund has said that a “much more uncertain” global economy could jeopardize Indonesia’s growth until next year, but a greater focus on domestic consumption and policy reforms can overcome the threat.

The IMF said Indonesian economic growth would increase to 6.4 percent this year from the agency’s initial estimate of 6.2 percent.

But uncertainties in the global company would slow the country’s GDP growth to 6.3 percent next year from its initial estimate of 6.5 percent, according to the latest issue of World Economic Outlook titled “Slowing Growth, Rising Risks” released on Wednesday.

That compares with the government’s targets of 6.5 percent for 2011 and 6.7 percent for 2012. Bank Indonesia (BI) has also expected a slowdown in Indonesia’s economic growth next year as stalling economic recovery in the United States and Eurozone debt woes are expected to slow global trade, exports and, in turn, growth.

“Domestic demand — in particular, robust investment — will offset the slowdown in export momentum. While commodity prices will remain supportive, they will provide less of a boost to growth for the commodity exporters; Indonesia, Malaysia,” the IMF report read.

To support faster economic growth in Indonesia, key policy reforms are needed for 2012 to 2016 fiscal projections primarily in enhancing budget implementation to ensure fiscal policy effectiveness, reducing energy subsidies through gradual administrative price increases and continuous revenue mobilization efforts to create room for infrastructure development, according to the IMF.

“Higher oil prices will have a negative budgetary impact in the absence of fuel subsidy reform, but this effect is likely to be offset by underspending, in particular on public investment, given significant budgeted increases.

The government has been receiving widespread criticism on its budget allocation and disbursement as a huge portion of the state budget is designated for subsidies — primarily energy — even when global oil prices remain higher than expected.

Sri Mulyani Indrawati, a former Indonesian finance minister who is now a managing director at the World Bank, said reform at home would be a key to boost infrastructure investment and deliver pro-poor growth that could turn the economy away from recession.

“Investing in quality infrastructure can provide outstanding returns in terms of growth and development outcomes,” Sri Mulyani said in an essay made available for The Jakarta Post recently.

Coordinating Economic Minister Hatta Rajasa urged stakeholders not to be “nervous” of a downward revision of Indonesia’s growth from international financial institutions, including the IMF, as he remained optimistic of stronger growth thanks to low external dependency and high reliance on domestic consumption, which accounted for more than 50 percent of the country’s economy.

“We should keep our growth momentum. The important thing is to maintain the people’s purchasing power so that they can keep buying, therefore inflation should be maintained,” Hatta told reporters in response to the IMF’s findings