Despite IMF Praise, Indonesia Must Stay Alert

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  • TEMPO.CO, Jakarta - PT Bank Central Asia chief economist David Sumual said Indonesia still must stay aware even though International Monetary Fund managing director Christine Lagarde said the country's economic condition is still good.

    “In 1997, IMF also said we have a strong fundamental,” David told Tempo on Wednesday, September 2.

    However, David acknowledged that the current economic condition is still good despite experiencing slowdown. Foreign exchange reserves are much better compared to 1997/1998. Bank Indonesia also intervenes only a little in maintaining rupiah exchange rate.

    “In the banking sector, bad credit is still low and capital adequacy ratio is 20 percent better,” he said.

    The Finance Ministry, Bank Indonesia and the Financial Services Authority have issued several policies to keep rupiah from depreciating. The policies include tax holiday for pioneer industries, rupiah stabilization and state-owned companies’ stock buy back. “For mitigation, these are necessary,” said David.

    However, according to David, there are still vulnerabilities, especially in ownership of government bonds (SUN) by foreign investors of 40 percent. In Thailand, SUN ownership portion is only 15 percent. “This means that the government still has dependency on portfolio in covering up budget deficit,” said David.

    Chirstine Lagarde previously said Indonesia’s economy is still stable and rupiah depreciation is influenced by China’s economy, drop in commodity prices and The Fed’s plan to increase interest rate.

    “Those factors can trigger volatility,” said the former French Finance Minister.