Indonesia can cope with a worsening global economic situation and has policy instruments in place to deal with a crisis, President Susilo Bambang Yudhoyono said on Tuesday.
Southeast Asia’s biggest economy has grown steadily at 6.5 per cent this year, powered by consumption from an expanding middle class, natural resource exports and investment, while policymakers have contained inflation and cut government debt levels.
Reflecting gains Indonesia has made since it was battered in 1998 by the Asian economic crisis and turmoil that forced longtime president Suharto from power that year, Yudhoyono declared: “Our self-perception as a failed state has finally disappeared.”
The president, in an annual speech to parliament ahead of the country’s Independence Day, said: “Even though the economic situation in Europe and the United States is not good news for the world, we have sufficient confidence to overcome that uncertainty.“All policy instruments to deal with a crisis are in place and ready to be used any time,” he added in the televised speech.Yudhoyono’s popularity at home has fallen this year because of slow policy making and a stalled fight against corruption. But the economy has hummed along and foreign direct investment interest has surged from manufacturing and consumer firms.
Foreign investors have taken the stock market to record highs and their bond ownership to record levels, with only a limited sell-off recently on increased global risk aversion following the US sovereign rating downgrade.By contrast, Fitch Ratings looks set to upgrade Indonesia to an investment grade sovereign rating within the next year, a status that would put it on a par with BRIC nations such as Brazil and China, enable greater institutional investment and lower long-term borrowing costs for the government.
The rupiah has surged to seven-year highs on fund inflows and as the central bank has allowed the currency to rise to cool imported inflation, though policymakers worry a change on investor sentiment could lead to destablising outflows. “I believe our experience to overcome the global crisis in 2008-2009, along with hard work and cooperation among us all, can save this country,” said Yudhoyono, though he did not give details of the policy tool-kit in the event of a crisis.
Since the 2008 credit crisis, Bank Indonesia has more than doubled its foreign reserves to around $120 billion to have the firepower to stabilise the rupiah in case of sudden outflows. It has also taken measures to push investors out of short-term central bank debt and into longer-term government bonds.“I believe we are heading towards the right direction with our economic policy and am confident that Indonesia will be resilient facing the US and European turmoil,” said Eric Alexander Sugandi, economist at Standard Chartered in Jakarta.“Thumbs up to Bank Indonesia and the Ministry of Economy for not overreacting to the global conditions - no capital control or discriminative policy for the market because that could backfire,” he added.The country has slashed its debt to GDP ratio in the past decade to 26 per cent in 2011, and is aiming for a budget deficit equivalent to 2.1 per cent of GDP, enviable numbers for European countries facing a worsening debt crisis.
Yudhoyono said the country still needed to improve the quality of its institutions, with corruption seen as rampant among law courts, the police and parliament.
“Our biggest challenge is to improve the quality of political participation, as well as public confidence in democratic agencies,” Yudhoyono said. “We have to honestly admit that law and justice remains a big challenge.”
From / Gulf Today