16 Sep 2010

IMF / INDONESIA ECONOMIC REPORT

Indonesia is likely to experience accelerating economic expansion-with 6 percent growth predicted for 2010 and 2011-but the IMF warns about the threat of inflationary pressures.IMF

Posted at: September 16, 2010 9:03 pm

Duration: 04:08

Available in: SD

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STORY: IMF / INDONESIA
TRT: 4.08
SOURCE: IMF/ UNIC JAKARTA
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 16 SEPTEMBER 2010, WASHINGTON DC / FILE

SHOTLIST:

FILE - RECENT, WASHINGTON DC

1. Wide shot, exterior IMF headquarters

16 SEPTEMBER 2010, WASHINGTON DC

2. SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"Indonesia's done very well and I think there are four main reasons.  First, they've had very strong economic fundamentals.  They've improved macroeconomic policy management.  They've strengthened corporate sector and public sector balance sheets. Secondly, they have very strong resource endowments.  Commodity exports, especially within the region, have been very strong. Thirdly is the regional growth momentum.  Asia as a region is doing very well and especially exports to China have been very strong. And finally, they've had a very stable political environment."

FILE - RECENT, WASHINGTON DC

3. Wide shot, interior IMF headquarters

16 SEPTEMBER 2010, WASHINGTON DC

4. SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"For Indonesia, right now the challenge is really managing their success that they've already had.  But the risks we see going forward are the risks that come from that success.  I think in the short term there are some upside risks on prices and inflation.  The economy, the economic recovery, is growing.  The economy is growing at 6 percent now and we see credit growth starting to come back and they're trying to manage capital inflows.  And all of this is providing a boost to domestic liquidity and I think they'll need to be more proactive going forward on monetary policy."

FILE - RECENT, WASHINGTON DC

5. Wide shot, interior IMF headquarters

16 SEPTEMBER 2010, WASHINGTON DC

6. SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"First, they need to strengthen infrastructure, and to do this they need both public and private investment.  So they need to improve the investment climate.  And also, on the public side, they need to improve the effectiveness of macroeconomic policy, both the fiscal policy by having more public investment in infrastructure and reducing subsidies and raising more revenue so they can finance more public investment, and also improving, as I said, the credibility of monetary policy so they have low and stable inflation."

FILE - RECENT, WASHINGTON DC

7. Wide shot, interior IMF headquarters

16 SEPTEMBER 2010, WASHINGTON DC

8. SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"The financial sector is very stable and they strengthened it a lot over the last 10 years.  So it's a similar story as with the macroeconomy in general.  They've really improved the fundamentals.  Now they need to improve the effectiveness going forward. And on the financial sector, they need to strengthen creditor rights and the legal foundation that will enable banks to have lower lending rates.  And they also need to deepen the capital markets so there are more funding sources for businesses to help finance investment."

FILE - UNIC JAKARTA - 2009, SULAWESI, INDONESIA

9. Wide shot, Volcano near Manado, Sulawesi

FILE - UNIC JAKARTA - 2009, BANDA ACEH, INDONESIA

10. Wide shot, people in front of mosque in Banda Aceh

FILE - UNIC JAKARTA - 2009, YOGYAKARTA, INDONESIA

11. Wide shot, traffic in Yogyakarta

FILE - UNIC JAKARTA - 30 APRIL, 17 MAY 2010, JAKARTA

12. Wide shot, Central Jakarta traffic roundabout

FILE - UNIC JAKARTA - SULAWESI, INDONESIA

13. Med shot, man walking near harbour in Manado, Sulawesi

FILE - UNIC JAKARTA - 30 APRIL, 17 MAY 2010, JAKARTA

8. Med shot, people at bus stop in South Jakarta
9. Wide shot, high-rise buildings

STORYLINE:

Indonesia is likely to experience accelerating economic expansion—with 6 percent growth predicted for 2010 and 2011—but the IMF has warned about the threat of inflationary pressures.

SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"Indonesia's done very well and I think there are four main reasons.  First, they've had very strong economic fundamentals.  They've improved macroeconomic policy management.  They've strengthened corporate sector and public sector balance sheets. Secondly, they have very strong resource endowments.  Commodity exports, especially within the region, have been very strong. Thirdly is the regional growth momentum.  Asia as a region is doing very well and especially exports to China have been very strong. And finally, they've had a very stable political environment."

In their annual health check of Southeast Asia's largest economy, IMF economists said Indonesia had emerged strongly from the global financial crisis due to robust domestic consumption and investment, and greater exports.

SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"For Indonesia, right now the challenge is really managing their success that they've already had.  But the risks we see going forward are the risks that come from that success.  I think in the short term there are some upside risks on prices and inflation.  The economy, the economic recovery, is growing.  The economy is growing at 6 percent now and we see credit growth starting to come back and they're trying to manage capital inflows.  And all of this is providing a boost to domestic liquidity and I think they'll need to be more proactive going forward on monetary policy."

Last year Indonesia was the only country in the Group of 20 leading economies to lower its public debt-to-GDP ratio—a reflection of improved economic management over recent years, as well as appropriate policy responses during the crisis. But continued economic recovery has put upward pressure on prices.

SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"First, they need to strengthen infrastructure, and to do this they need both public and private investment.  So they need to improve the investment climate.  And also, on the public side, they need to improve the effectiveness of macroeconomic policy, both the fiscal policy by having more public investment in infrastructure and reducing subsidies and raising more revenue so they can finance more public investment, and also improving, as I said, the credibility of monetary policy so they have low and stable inflation."

The central bank needs to take a proactive approach to keeping inflation in check. Maintaining low inflation would help lower borrowing costs, supporting growth.

SOUNDBITE (English) Tom Rumbaugh, Mission Chief to Indonesia, IMF:
"The financial sector is very stable and they strengthened it a lot over the last 10 years.  So it's a similar story as with the macroeconomy in general.  They've really improved the fundamentals.  Now they need to improve the effectiveness going forward. And on the financial sector, they need to strengthen creditor rights and the legal foundation that will enable banks to have lower lending rates.  And they also need to deepen the capital markets so there are more funding sources for businesses to help finance investment."

Inflation expectations for 2011 are currently at the top end of the 4—6 percent target range and could move higher. Since the crisis, the central bank has kept interest rates low, but in their report the IMF economists said it now needed to meet expectations that inflation would be kept within the target range.