Bank Indonesia said economic growth of 5.4 percent this year is too optimistic and the nation should aspire for higher credit ratings to catch up with its Southeast Asian peers.
“In our view, the 2017 growth rate should be higher than 2016,” Bank Indonesia Senior Deputy Governor Mirza Adityaswara said in an interview in Jakarta on Friday. “Maybe 5.4 percent is still a bit too aggressive, but we think 5.1 percent to 5.2 percent is still a possible number to achieve in 2017.”
While Southeast Asia’s biggest economy is gradually recovering, it faces risks from a slowdown in China and weaker prices of coal and palm oil, the nation’s main commodity exports.
Indonesian President Joko Widodo has pledged to boost growth to 7 percent during his term in office, but economists surveyed by Bloomberg predict expansion of under 5.5 percent until 2019.
The government has made inroads on some economic reforms, helping it win an investment-grade score from S&P Global Ratings this month. Despite its economic size, smaller neighbors including the Philippines, Thailand and Malaysia all enjoy higher ratings from S&P.
“We have to use the improvement in the credit rating to challenge ourselves to get further improvement,” Adityaswara said.
Keeping the current-account deficit under control is key, which means the nation needs to diversify into non-commodity exports and push for stronger tourism, he said.
Global funds poured a record US$6 billion into rupiah securities this year, helping to drive Indonesia’s 10-year yield down by the most in Asia.
Fitch Ratings and Moody’s Investors Service already rates the nation at investment grade, and Goldman Sachs Group Inc said in March an S&P upgrade might help attract as much as US$5 billion in funds from Japan alone.
“Considering that the global situation is quite stable, what we can expect is funds from Japan, and also funds from maybe European and American pension funds that are purposely not in Indonesia yet to come,” Adityaswara said.
Bank Indonesia has kept its benchmark interest rate unchanged at 4.75 percent for seven months, refraining from providing more stimulus to the economy after six rate cuts last year. Inflation accelerated to the highest in more than a year last month at 4.17 percent, above the mid-point of the bank’s 3 percent to 5 percent target band.
“The key for us is to maintain prudentiality in managing the macro,” Adityaswara said. “The government manages the fiscal prudentiality, while Bank Indonesia maintains prudentiality in the monetary policy, basically to make sure inflation is under control and the current-account deficit is under control.”
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