Indonesia: Sri Mulyani sees weaker growth, rate cut room

  • Indonesia’s finance minister said the economy will probably expand at a slower pace than previously forecast, and that there’s ample room for the central bank to cut interest rates in coming months to spur growth.
  • The economy is projected to grow between 5.17% and 5.2% in 2019, she said. The government had earlier forecast Southeast Asia’s biggest economy would expand 5.3% in 2019.
  • The worsening trade dispute between the world’s two biggest economies is curbing that outlook, while also putting pressure on the current-account deficit, exposing Indonesia to currency risks.
  • Indrawati said the government has fiscal room to boost growth, but must take care to ensure any steps are consistent with structural reforms it’s promoting.
  • Southeast Asian economies, including Indonesia, see opportunities from the trade war as businesses look to move production out of China to avoid higher U.S. tariffs, Indrawati said.
  • Indonesia wants to improve its investment climate to take advantage of that, she said, adding that she’s confident the country can attract more foreign direct investment.
  • Competing with other Southeast Asian nations such as Vietnam that increasingly are integrated into global supply chains, Indrawati said the government is focused on “how to build an environment in Indonesia that is equally or even more attractive” to foreign investors.
  • One challenge is ensuring that local authorities across the sprawling archipelago are aligned with policy set by the central government, she said.
  • While regional central banks from Australia to India have all started easing in 2019, Bank Indonesia has taken a more cautious approach, leaving rates unchanged.
  • Indrawati said there’s “a lot of room for them to actually maneuver within 2H19.” The central bank “will find the right timing” to move, reiterating the view from Governor Perry Warjiyo.
  • The finance minister said macroeconomic policy can’t take the place of necessary structural reforms though. The government “needs to provide the playing field for everybody to have confidence and stability,” she said.

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