Monetary Policy Review - February 2009

The global economic crisis has had a serious impact, beating time with their original predictions. Recent developments indicate that almost all developed countries and some developing countries will see a significant contraction in GDP during 2009. The liquidity crisis is also expected to keep taking on world financial markets as a result of ongoing deleveraging process in some developed economies. 

In response to these developments, Bank Indonesia expected that in 2009 the Indonesian economy will grow 4% -5% with a risk of downward bias in the event of damage more global. Slowing export growth will be the primary cause of weakening of economic performance in 2009. The main source of impetus for economic growth this year will be domestic demand, driven mainly by private consumption driven by rising levels of provincial minimum wage, the costs associated with the central government and regional social policies and expenditure with the elections by political parties. Together with this, will benefit from the investment of the Central Government for capital expenditures and the fiscal stimulus integral infrastructure construction, and capital expenditure of the Regional Government


With the global economy and commodity prices in decline, inflationary pressure in Indonesia has begun to ease, with this trend predicted to carry forward in 2009. If the downward movement in prices for commodities, subsidised fuels and rice maintains a favourable trend, there is a strong likelihood of achieving the lower limit of the 5%-7% inflation projection for 2009. There are growing indications of future easing of inflationary pressures. Weakening domestic demand, steeper decline in international commodity prices (foodstuffs and energy) and adequately maintained supply of energy and staples are among the factors supporting the easing of inflationary pressures. Furthermore, the stronger than expected plunge in international crude prices could pave the way for further cuts in subsidised fuel prices. This in turn could push down prices for fuel-related items, such as transport fares.

In related developments, the average rupiah exchange rate appreciated further in January 2009, despite some weakening near month-end. The rupiah came under short-term pressure from external conditions marked by uncertainty over the economic outlook in various regions and turbulence on global financial markets. Bank Indonesia will stay the course with stabilisation of the rupiah to avoid excessive forex market volatility.

Amid these economic developments and with inflationary pressures in decline, Bank Indonesia is focusing its energies on sustaining domestic economic growth. In so doing, Bank Indonesia is maintaining a close watch on inflation, macroeconomic stability and the medium-term stability of the financial sector. Bank Indonesia is pursuing a series of monetary policy actions to prevent further losses in the real sector. 

In the decision of the Board of Governors’ Meeting in February 2009, Bank Indonesia lowered the BI Rate by a further 50 bps from 8.75% to 8.25%, the third such action since December 2008. Besides cutting the BI Rate, Bank Indonesia will continue to optimise the use of all monetary instruments at its disposal, such as Open Market Operations (OMOs), while maintaining stability on the rupiah and forex markets. Added to this, the monetary policy relaxation has been accompanied by Bank Indonesia actions to promote bank lending to productive sectors within the limits of prudential banking. This measure is expected to deliver a boost to the domestic economy that will prevent steeper decline.

Banking indicators point to response to the BI Rate cut in time deposit rates and lending, albeit on a limited scale. The downward movement of interest rates is also expected to ease supply constraints on bank loans. As for the business community, the lower interest rates are expected to businesses against pessimism about economic prospects. 

The Indonesian banking system remains in solid form with the capital adequacy ratio (CAR) and loans (NPLs) within safe limits. Various measures to reduce the segmentation in the banking sector liquidity have also shown results to be reflected in the renewed improvement in the flow of liquidity in the interbank money market, compared to a few months earlier. 

Looking ahead, the Board of Governors of Bank Indonesia to maintain the course with a pro-growth, keeping a close watch on the macroeconomic stability. In addition to easing inflationary pressures will allow more room for rate cuts in the BI. Support for reducing the rate of Biscay also come from other actions for improving and strengthening the financial sector, including improvements to the system of banking supervision. Bank Indonesia will continue its efforts to expand the role of the banking sector as a source of financing companies and the momentum for economic growth.

Source: Bank Indonesia

Read More..

export slump, assumption only?

The economic crisis the world is very real, but we are still busy by changes in assumptions, the State Budget. One and a half months have passed away in 2009, either at the start of development and expenditure of funds or stimulus for economic growth muted slow explosion and the threat of termination of employment (PHK). 

If previous years are so many higher-up scale-scale changes in the national budget is the fluctuation in oil prices, now spreading to almost all the macroeconomic scale. Last week, the government-run assumption hoist down export growth and economic growth. 

Not be denied that the economic development of the world from day to day more bad. World Economic Outlook publication edition of the International Monetary Fund in October 2008 to include a projection of economic growth (output) of the world in 2009 was 3.0 percent. However, a month later corrected to be 2.2 percent. At the end of January, the IMF re-make the corrections, which is quite drastically, to only 0.5 percent. 

Correction in line with world economic growth projections, the projected growth in world trade in 2009 was corrected, from 4.1 percent in October 2008 to be 2.0 percent in November 2008, and minus 2.8 percent, in January 2009. Comparison of the correction appears on the world trade growth is rather sharp correction in the economic growth of the world. 

The government seems to respond to trends in economic growth and the deterioration of trade with the proposed export growth assumptions, edit and gross domestic product in the 2009 Budget. Export growth fell from 5.9 percent in early January to be 5 percent at the end of January and finally 2.5 percent in the first Sunday in February 2009. In fact, the government has the export growth of only 1 percent. If compared with the year 2008 export growth of 13.7 percent, the export performance of India this year will slip down very sharply. 

If the world economy continue to experience further deterioration of the estimated nowadays, can we export growth will be even worse, say experienced negative growth. In other words, the export volume this year will be lower than last year. What with the government will then edit the target more economic growth? 

In fact, the export decline will not affect economic growth, when at the same time imports are down proportionally. In fact, starting from the crisis of 1998 and the outbreak in China of late, more severe deterioration imports rather than exports resulting in a decrease in the improvement of trade balances and transactions running (current account). Furthermore, the decline of import growth more sharply than the export growth would provide a positive contrib. against economic growth. 

Domestic economy 


The majority of our exports are commodities and primary products manufacturing low value added. One of the salient characteristics of products such as the demand is less sensitive to changes in technical language or low income elasticity of demand. So, even if the world recession, export volume we will not down. 

We do not export a lot of cars, electronic gadgets, and services that modern expensive. Thus rather, a kind of products that we import most. Because the demand for products is very sensitive to changes in income, we had to import products that will go down rather than more drastic decline in our exports. So, can the end result will be positive for economic growth and external balance, particularly the transaction running. 

Concern that the export decline will lead to large waves PHK muted if we can maximize the potential market in the country. Focus on the three products, namely electronics, textiles and ready-made, and shoes. Specifically, out fight illegal imports. Electronic manufacturers' association that more than half the import of illegal electronic done. The portion is big enough that there is also alleged to import textiles, ready-made, shoes, and food and beverages. 

Then, help whitewash the labor we find that living abroad with guaranteed legal protection. One more source of potential revenues for foreign exchange is tourism sector. 

With improvement fundamental in this sector, at least we can still hope not decrease the number of visitors. Donations foreign tourists and foreign workers is very large role in the receipt of income and unemployment reducer. 

It is, resistance we face economic sluggishness of the world can not a shadow of the numbers that later as long as we want this hard work. 

Source: kompas.com

Read More..