Deputy BI: Indonesia is Facing Substantial Challenges

TEMPO.CO, London - Deputy Governor of Bank Indonesia (BI) Hendar admitted that Indonesia is currently facing a tough challenge but various policies have been made to deal with it.

Hendar said in the monetary sector, the central bank maintains a tight bias monetary policy to maintain market confidence and reduce the deficit in the current account.

The Deputy Governor of BI made his statement during the inauguration of Head of BI Representative for Europe and Africa in London Endy Dwi Tjahjono, who replaces Rizal A Djaafara in London on Tuesday, August 25.

In order to encourage credit growth, BI has relaxed loan to value provision and made adjustments to GWM-LDR provisions by expanding the scope of third party funds, including bonds issued by banks.

While in monetary operations, BI had stabilized the exchange rate through intervening to control the sale and use of foreign exchange for transactions between residents in the country.

He said some of these policy measures have positive impact, although not fully meeting expectations. Pressure against the rupiah continued even though BI has done quite a lot to stabilize the foreign exchange market.

In the last two quarters in 2015, the national economy grew less than five percent, which decreased from 4.71 percent in the first quarter of 2015 to 4.67 percent in the second quarter of 2015.

This slowdown came mainly from the decrease in export performance due to the continuing decline in primary commodity prices such as coal, palm oil, and petroleum.

Meanwhile, amid the uncertainty in global financial markets, a slowdown in economic growth was also triggered a collapse in the stock price index from 5500 in April 2015 to around 4100 earlier in the week. Concerns over a slowdown in China's economy further increased the pressure on the capital market, he said.

So far, according to Deputy BI, the implications of slowing economic growth against the level of welfare is still not significant. But in some major producing areas of coal, oil palm, rubber and its impact began to be felt. The entrepreneurs or farmers no longer turned in managing business activities on the commodity.

The second challenge is the weakening of the rupiah. The uncertainty of the Fed's interest rate hikes, which began in May 2013, continues to be a major trigger instability of the exchange rate, he said.

This pressure is increasingly heavily as the market believes some US economic fundamentals support the Fed to start normalizing its policy rate. However, until now the interest rate increase has not arrived, while the impact is felt heavier.

In fact, this uncertainty is expected to continue after the Central Bank of China depreciated its currency last August 11. The China central bank policy impacts need to be monitored closely considering it will not only impact the exchange rate but also the possibility of rising imports from China amid sluggish export performance.

ANTARA