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Indonesian govt to focus on investment in reviving GDP growth
Publication Date : 22-08-2013
President Susilo Bambang Yudhoyono says the government will focus on boosting investment to deal with the decline in the country’s economic growth and the fall in the value of the rupiah, amid a massive outflow of foreign funds from the country’s stock and debt markets.
Speaking at a press conference in Jakarta on Wednesday, the President said that the fall in Indonesia’s exports resulting from the slow recovery in the global economy would further hinder economic growth if no appropriate measures were taken to keep the growth on track
“Because our exports are declining, we need to increase investment in order to keep growth on track,” he said.
The government, Yudhoyono said, would introduce a package of new economic measures to boost investment and to combat rising inflation as well as to halt the fall in rupiah and share prices. He said that the package of economic measures would be announced on Friday.
The rupiah has fallen 3.6 per cent and the Jakarta Composite Index (JCI) has dropped 7.7 percent this week as foreign investors pulled out their funds amid fears that the US Federal Reserve would soon reduce its stimulus program, which had partly contributed to the massive inflows of foreign funds into emerging markets, including Indonesia, in the recent past.
The capital outflow might further reduce the country’s foreign exchange reserves, which fell to US$92.67 billion at the end of July the lowest level since October 2010 from $98.1 billion a month earlier. The foreign exchange reserves have dropped by a total of $20.11 billion since last December.
Yudhoyono blamed the fall in the rupiah and share prices on the Fed’s plan to reduce its $85 billion-a-month stimulus program. “The monetary policy in the US has severely hurt emerging markets, including Indonesia,” he said.
Hours after the President’s press statement, the JCI rose by 1.04 percent to 4,218.4. It was the first increase in five days, thanks to massive buying by state-owned workers’ insurer PT Jamsostek.
The rupiah traded at 10,873 against the dollar, down slightly from 10,694 on Tuesday, or 12.8 percent since the start of this year.
With more investment, the President said, the country’s economic growth target of higher than 6 percent could be achieved. “To be honest, it will be difficult to reach a target of 6.3 percent economic growth,” Yudhoyono said while urging industries not to lay off workers despite the economic slowdown.
Industry Minister MS Hidayat admitted it would be impossible to push exports as the immediate action to be taken was to ease the declining economy. “Exports are highly reliant on the market situation in customer nations,” he said, adding that the economic turmoil could last until October.
Finance Ministry Chatib Basri said that the economic policy package that would be introduced on Friday aimed mainly at easing volatility in the market and preventing economic growth falling below 6 per cent.
Chatib insisted that the immediate focus at the moment was to prevent a further widening of the country’s current account deficit, which had also led to the fall in rupiah and share prices. “If we addressed all issues at once, investors would regard us as being out of focus,” he added.
Bank Indonesia (BI) announced last week a current account deficit of $9.8 billion in the second quarter, equal to 4.4 per cent of GDP. That compared with a deficit of $5.8 billion, or 2.6% of GDP, in the first quarter.
BI governor Agus Martowardojo said he was certain the current account deficit would be lower than 3 percent of GDP in the third quarter.
He added that BI would continue to buy back government securities, such as treasury notes (SBN) and government bonds (SUN), as part of its intervention efforts to ease pressure on the rupiah.
Commenting on the volatility in the stock market, the Financial Services Authority (OJK) chairman Muliaman Hadad acknowledged that some firms had asked for leniency in coping with the turmoil. According to Muliaman, the OJK may allow listed companies to buy back their shares without having to acquire shareholders’ approval through extra-ordinary shareholders’ meetings.