Washington, DC: The Executive Board of the International
Monetary Fund (IMF) concluded the 2020 Article IV consultation
[1]
with Indonesia.
The Indonesian economy is gradually recovering, owing in part to a bold,
comprehensive, and coordinated policy response to address the
socio-economic hardship inflicted by the COVID‑19 pandemic in the first
half of 2020. Real GDP increased by 3.2 percent in 2020:Q3 (q/q, s.a.) and
is expected to have contracted by a modest 1.9 percent in 2020 as a whole.
Headline inflation reached 1.7 percent (y/y) at end‑2020, below the Bank
Indonesia’s target band (3±1 percent), partly due to a strong harvest
leading to lower food prices. The current account deficit is expected to
have narrowed to 0.5 percent of GDP in 2020, mostly due to a relatively
sharper contraction of imports.
The outlook is positive. Real GDP is projected to expand by 4.8 percent in
2021 and 6 percent in 2022, led by strong policy support measures,
including increased public investment and COVID‑19 vaccine distribution
plans, as well as improved global economic and financial conditions.
Inflation is projected to rise gradually to 3 percent (y/y) at end‑2021.
The current account deficit is projected to widen to 1.5 percent of GDP in
2021, reflecting higher imports driven by economic recovery. Credit growth
is expected to pick up in 2021 with stronger activity, albeit remaining
below nominal GDP growth due to increased risks to asset quality and bank
profitability. The uncertainty surrounding the growth outlook is
nevertheless larger than usual. Early widespread vaccination is an upside
risk, while delays could lead to a more protracted pandemic, a downside
risk. The macro-financial fallout of the pandemic and economic downturn
could be larger-than-expected, and credit conditions could be slow to
improve.
Executive Board Assessment
[2]
Executive Directors commended the authorities’ containment measures and
supportive macroeconomic policies, which have been instrumental in
cushioning the economic impact of the pandemic. They noted that Indonesia’s
strong fundamentals and prudent macroeconomic policy track record have
contributed to its economy’s resilience.
Directors noted that supportive monetary and fiscal policies along with the
envisaged increase in public investment should help foster economic
recovery. They observed that risks to the outlook are tilted to the
downside, mainly due to domestic and global uncertainties associated with
the pandemic. Early completion of a widespread vaccination program,
however, is an upside risk, and Directors were encouraged by the recent
increase in the funding for the health policy response to the pandemic.
They observed that Indonesia has the macroeconomic policy space to provide
additional support if downside risks materialize. They welcomed the
measures to foster transparency and ensure the effectiveness of
pandemic-related spending.
Directors commended the authorities’ commitment to return to the statutory
budget deficit ceiling by 2023, noting the importance of unwinding the
exceptional measures in a balanced manner. They stressed the need to
underpin the fiscal rules with a medium-term fiscal strategy that includes
revenue measures. Higher government revenues would help create space to
boost development spending and support sustainable and inclusive growth.
Capacity building support will be crucial.
Directors agreed that maintaining an accommodative monetary policy stance,
contingent on the inflation outlook, is appropriate. They noted the
authorities’ strategy of pursuing monetary accommodation through a
combination of lower policy interest rates and government bond purchases by
Bank Indonesia in the current exceptional circumstances. To balance the
benefits and risks of temporary monetary budget financing, they welcomed
Bank Indonesia’s plan to conduct bond purchases in 2021 only as a last
resort under the market mechanism. They suggested that clarifying the
last-resort criteria would help enhance the monetary policy framework and
safeguard Bank Indonesia’s operational independence. Directors also noted
the role of exchange rate flexibility in absorbing shocks.
Directors noted that the banking system remains stable, but continued
monitoring on bank asset quality is warranted. They emphasized that
proactive loan loss provisioning will be critical for banks’ ability to
weather any deterioration in asset quality. They noted that additional
targeted policy steps to revive credit might be necessary if bank lending
to the private sector does not rebound. Directors also highlighted the
importance to continue upgrading crisis management and resolution
frameworks.
Directors welcomed the authorities’ push for structural reforms with the
omnibus bill on job creation, as well as their plans to close
infrastructure gaps. They encouraged the authorities to sustain the reform
momentum, with a focus on developing a medium-term government revenue
strategy, financial deepening and digitalization, and fostering a greener
economy and tackling challenges related to climate change.
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Indonesia: Selected Economic Indicators
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2016
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2017
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2018
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2019
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2020 1/
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2021
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Est.
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Proj.
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Real GDP (percent change)
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5.0
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5.1
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5.2
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5.0
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-1.9
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4.8
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Domestic demand
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4.6
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5.0
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6.1
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4.0
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-2.8
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5.1
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Of which:
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Private consumption 2/
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5.0
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5.0
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5.0
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5.2
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-2.5
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5.0
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Government consumption
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-0.1
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2.1
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4.8
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3.2
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6.0
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5.0
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Gross fixed investment
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4.5
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6.2
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7.9
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4.4
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-4.7
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4.5
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Change in stocks 3/
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0.2
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-0.1
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0.4
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-0.6
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-0.3
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0.3
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Net exports 3/
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0.1
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0.3
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-1.2
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1.4
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0.8
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-0.1
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Saving and investment (in percent of GDP)
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Gross investment 4/
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33.9
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33.7
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34.6
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33.8
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32.5
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32.7
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Gross national saving
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32.0
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32.1
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31.6
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31.1
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32.0
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31.2
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Prices (12-month percent change)
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Consumer prices (end period)
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3.0
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3.6
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3.2
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2.6
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1.7
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3.0
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Consumer prices (period average)
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3.5
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3.8
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3.3
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2.8
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2.0
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2.0
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Public finances (in percent of GDP)
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General government revenue
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14.3
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14.1
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14.9
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14.2
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12.1
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12.1
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General government expenditure
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16.8
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16.6
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16.6
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16.4
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17.8
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18.0
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Of which
: Energy subsidies
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0.9
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0.7
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1.0
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0.9
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0.7
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0.6
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General government balance
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-2.5
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-2.5
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-1.8
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-2.2
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-5.7
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-5.9
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Primary balance
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-1.0
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-0.9
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0.0
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-0.5
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-3.7
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-4.0
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General government debt
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28.0
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29.4
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30.4
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30.6
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35.7
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40.1
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Money and credit (12-month percent change; end of
period)
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Rupiah M2
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10.0
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8.3
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6.3
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6.5
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11.5
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7.0
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Base money
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3.9
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8.9
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0.2
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2.9
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-6.5
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7.0
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Claims on private sector
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7.7
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7.2
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10.3
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5.8
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-0.5
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5.6
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One-month interbank rate (period average)
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6.5
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5.6
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6.2
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6.4
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4.5
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…
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Balance of payments (in billions of U.S. dollars,
unless otherwise indicated)
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Current account balance
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-17.0
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-16.2
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-30.6
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-30.4
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-5.5
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-17.4
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In percent of GDP
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-1.8
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-1.6
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-2.9
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-2.7
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-0.5
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-1.5
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Trade balance
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15.3
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18.8
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-0.2
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3.5
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23.4
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20.3
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Of which
: Oil and gas (net)
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-4.8
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-7.3
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-11.4
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-10.3
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-9.2
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-8.7
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Inward direct investment
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3.9
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20.6
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20.6
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23.5
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13.6
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18.8
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Overall balance
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12.1
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11.6
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-7.1
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4.7
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6.7
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16.4
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Terms of trade, percent change (excluding oil)
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0.4
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1.3
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0.4
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-2.7
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-5.4
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1.7
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Gross reserves
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In billions of U.S. dollars (end period)
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116.4
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130.2
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120.7
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129.2
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135.9
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152.3
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In months of prospective imports of goods and services
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7.6
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7.1
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7.1
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9.9
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7.9
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8.1
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As a percent of short-term debt 5/
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213
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237
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201
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204
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207
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217
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Total external debt 6/
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In billions of U.S. dollars
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320.0
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352.5
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375.4
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403.5
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416.6
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446.9
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In percent of GDP
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34.3
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34.7
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36.0
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36.1
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38.3
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38.5
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Exchange rate
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Rupiah per U.S. dollar (period average)
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13,306
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13,383
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14,231
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14,140
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14,541
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…
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Rupiah per U.S. dollar (end of period)
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13,473
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13,568
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14,390
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13,866
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14,050
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…
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Memorandum items:
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Jakarta Stock Exchange (12-month percentage change,
composite index)
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15.3
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20.0
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-2.5
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1.7
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-5.1
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…
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Oil production (thousands of barrels per day)
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820
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815
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810
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805
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710
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707
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Nominal GDP (in trillions of rupiah)
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12,402
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13,590
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14,838
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15,834
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15,841
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16,939
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Sources: Data provided by the Indonesian authorities;
and IMF staff estimates and projections.
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1/
Based on data as of January 29, 2021 and does not
include the national accounts data for 2020:Q4 released
on February 5, 2021. The actual real GDP growth rate in
2020 was -2.1 percent.
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2/ Includes NPISH consumption.
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3/ Contribution to GDP growth (percentage points).
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4/ Includes changes in stocks.
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5/ Short-term debt on a remaining maturity basis.
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6/ Public and private external debt.
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[1]
Under Article IV of the IMF's Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country's economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.
[2]
At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An
explanation of any qualifiers used in summings up can be found
here:
http://www.IMF.org/external/np/sec/misc/qualifiers.htm
.