Speech

1. Introduction

Selamat pagi—Good morning!

I would like to thank President Widodo, Governor Agus, and Minister Indrawati for their warm welcome and hospitality.

Thank you not only to Bank of Indonesia for co-organizing our conference, but to all of you for hosting the IMF-World Bank Annual Meetings in October.

We are embarking on this great “Voyage” together.

It will be the first time that our Annual Meetings are held in Indonesia—a country that has transformed itself in recent decades through sound economic policies, and by harnessing the incredible ingenuity and diversity of its people.

In fact, over the next few days, I look forward to experiencing Indonesia’s dynamism and beauty first-hand. This will include meetings with civil society, women, students, and other, as well as visiting Bali and the Borobudur temple.

Indonesia and its ASEAN partners have been successful in creating vibrant middle classes, opening the doors to higher living standards for millions of people. By generating strong growth over the past two decades, they have also become key drivers of the global economy.

Their success is no accident. It is about implementing strong policy frameworks, drawing lessons from the past, and embracing change and openness. All that work has paid off.

The world can learn so much from this region—including the so-called “ASEAN way” of reaching across borders. It is, in my view, beautifully captured in the Indonesian phrase, “gotong royong,” “working together to achieve a common goal.”

That spirit also lies at the heart of the IMF. In this region and across the world, the Fund is working in partnership with our member countries to achieve a common goal—building economies that are fit for the future.

Today our discussions will focus on how we can create new growth models that are both sustainable and inclusive. That is our common responsibility. 

2. Changing Economic Landscapes 

Starting with the global economic picture, the good news is that we finally see a broad-based upswing, involving three quarters of the world economy. We expect global growth to accelerate further to 3.9 percent this year, and 3.9 next year as well.

There is good news also in Indonesia, where growth is projected to reach 5.3 percent in 2018, and rise gradually over the medium term. This momentum can lead to further increases in economic and social wellbeing.

Indonesia can be proud of the progress achieved. Over the past two decades, poverty levels have declined by almost 40 percent; life expectancy has increased by more than 6 percent; and the number of people with tertiary schooling has increased by 250 percent.

These achievements are representative of the positive trends across ASEAN countries.  

At the same time, economic landscapes are shifting. Think of the increased volatility in financial markets. Think of the heightened risk of trade disputes. And think of the profound impact of rapid technological advances such as digitalization, robotics, and artificial intelligence.

The ASEAN countries can navigate this difficult terrain by meeting three main challenges:

• Managing uncertainty;
• Making their economies more inclusive; and
• Preparing for the digital revolution.

a) Managing Uncertainty

Let us start with uncertainty. Again, the good news is that ASEAN countries have built stronger economic foundations—which helped them weather the global financial crisis and the “taper tantrum” in 2013.

Indeed, most countries in the region have improved their policy frameworks.

This includes adopting inflation targeting in Indonesia, the Philippines, and Thailand; as well as fiscal rules in Indonesia, Malaysia, and Vietnam. More broadly, it also involves strengthening financial policies and allowing for more exchange rate flexibility across the region.

But the recent volatility in financial markets has been a reminder that a fundamental economic transition is underway. Policymakers around the world—including in ASEAN—are preparing for the gradual normalization of monetary policy in major advanced economies.

We have known for some time that this is coming, but it remains uncertain as to how exactly it will affect companies, jobs, and incomes.

Clearly, policymakers need to stay vigilant about the likely effects on financial stability, including the prospect of volatile capital flows. There is also room for bold reforms to make economies more resilient.

As I have been saying recently, the time to repair the roof is when the sun is shining. What do I mean by that?

I mean that governments can use this moment of stronger growth to reinforce their policy frameworks. This includes further efforts to reform financial markets, upgrade labor laws, and lower barriers to entry in overly protected industries. 

Repairing the roof also means using fiscal reforms to generate higher public revenues, where needed, and improve spending. By boosting public finances, countries can increase infrastructure investment and development spending, especially on social safety nets for the most vulnerable.

b) Making Economies More Inclusive

Even as they manage uncertainty, ASEAN countries also need to improve their long-term growth prospects.

They recognize the need for new growth models that put a greater emphasis on domestic demand, regional trade, and economic diversification.

On ttat point, new IMF analysis shows that increasing the range and quality of a country’s exports can lead to significantly higher GDP growth [1] and greater economic stability.

These gains are achievable. Why? Because many countries in the region have successfully shifted a large part of their resources into higher-productivity areas—for example, by moving from agriculture to industrial production, to advanced manufacturing and services.

But this is not enough. To be sustainable, new growth models also must be more inclusive. Recent IMF research has shown that, when the benefits of growth are shared more broadly, growth is stronger, more durable, and more resilient.

Most ASEAN countries are already in a relatively strong position, because they have used specific policies to help reduce income inequality over the past three decades.

Thailand, for example, introduced universal health coverage in 2001; the Philippines launched conditional cash transfers in 2008; and Indonesia has improved the way it delivers assistance to low-income groups—including through the use of e-cards.

All ASEAN members can build on their achievements to ensure that the next generation will be better off.

Managing demographic transitions is a major part of this equation.

Countries with young and growing populations—such as Indonesia and Malaysia—can seize this opportunity to reap a “demographic dividend” by creating more, higher-quality jobs.

At the same time, countries such as Thailand and Vietnam can take steps to mitigate the effects of rapidly aging populations by using technology to boost workforce productivity.

Of course, these are only some of the tools that can be used. While there is no single policy recipe in this incredibly diverse region, all countries can benefit from sharing their experiences—working together to promote inclusive growth.

What have we learned?

A key priority is investing in people. In most ASEAN countries, there is room to increase education spending. Think of “Indonesia Pintar,” a savings program that will help keep more than 20 million children enrolled in schools.

There is also room to boost the proportion of women in the workforce by, for instance, providing affordable childcare and promoting women’s access to finance.

Here in Indonesia, female participation in the labor market has increased in recent years to 51 percent. Building on this momentum will be critical to close the gender gap. [2]

This could be an economic game-changer—and not just in this country. By some estimates, closing the gender gap in the labor market could boost GDP by 9 percent in Japan, 10 percent in Korea, and 27 percent in India.

Another policy priority is to improve the business environment—by cutting red tape and stepping up the fight against corruption. This can make it easier for new and innovative firms to get started and grow, creating jobs in dynamic sectors.

Investment in high-quality infrastructure is also important. Indonesia, for example, has a pipeline of more than 250 projects; the Philippines plans to spend $180 billion on rails, roads, and airports.

Provided this investment is efficient and cost-effective, it will boost productivity, incomes, and jobs.

All of this is important. But it will only take us so far.

c) Preparing for the Digital Revolution

We also must prepare for the digital revolution that is already beginning to change workplaces and economic structures—in this region and around the world.

A recent McKinsey study found that 60 percent of today’s jobs comprise some tasks that will soon be automated.

So we all need to think about the future of work. Managing this transition will be a major part of the answer to creating opportunities for all people.

We know that new growth models will rely on a range of technological innovations—from artificial intelligence, to robotics, to biotechnology, to fintech.

We also know that this region is, in many ways, a leader in these fields. I recently attended the Singapore Fintech Festival, where I had a chance to meet with some of the world’s most dynamic entrepreneurs and innovators.

In Indonesia, we see a vibrant digital ecosystem with more than 1,700 startups—one of the world’s largest clusters of new firms. A good example is Go-Jek, which has transformed itself from a ride-hailing app into a platform for mobile payments and many other services. 

The goal must be to harness this digital revolution in the best possible way—by improving digital infrastructures and by making education systems fit for the future.

I believe that very soon, we will be speaking of the change underway not as the “digital economy,” but just “the economy.”

We need to ensure that this new economy is not just a boost to productivity and growth, but also a foundation for a world that works for young and old, rich and poor, urban communities and remote villages.

Our common responsibility is to help create a smarter economy, a fairer economy, an economy with a human face.

The IMF is your partner in this great endeavor.

That is why we are working with you—and all our members—to address urgent macro-critical challenges, such as reducing inequality, increasing gender equity, and mitigating the effects of climate change.

And we are using all the tools at our disposal—from economic analysis, to financial resources, to our support for capacity development.

With our 189 member countries, we can also provide a unique platform for cooperation.

3. Stepping up Regional and Global Cooperation

This brings me to another crucial area where ASEAN countries are leaders.

I am talking about the continuous process of regional integration—working together to increase the size of the economic pie for all countries.

ASEAN can be proud of the progress made so far, including the elimination of intra-regional tariffs.

Now is the time to build on these achievements by:

• Removing nontariff barriers to further energize trade within ASEAN,
• Allowing for more labor mobility across borders, and
• Strengthening anti-corruption frameworks, including anti-money laundering—so that funds are not diverted into “dark channels” but instead are invested where they should be: in local companies, schools and hospitals—in people.

Again, the IMF can help—a new IMF in a new era, seeking to serve our members in new and better ways.

This includes listening and learning from all our partners—in Indonesia, ASEAN, and across the world.

4. Conclusion

Let me conclude by returning to the “ASEAN way.”

It is, in my view, beautifully captured in the official motto of Indonesia: “Bhinneka Tunggal Ika,” “Unity in Diversity.”

By working together, and by harnessing this region’s incredible diversity of languages, geographies, and economies, we have an opportunity to create new growth models that can benefit all.

I look forward to our discussions today—and to our Annual Meetings in October!

Terima kasih.