RI economy more resilient than expected, says IMF

Andi Haswidi ,  The Jakarta Post ,  Jakarta   |  Mon, 05/26/2008 10:19 AM  |  Headlines

The International Monetary Fund says Indonesia's economy has performed above expectations in weathering pressure from soaring global oil prices and a weakening U.S. economy.

The government held an annual consultation meeting with IMF lead economist Milan Brahmbhatt and country director Stephen Schwartz in Jakarta on Friday, to discuss recent developments with the country's economy and future challenges.

"The IMF was a bit surprised by the fact that Indonesia was able to secure 6.3 percent year-on-year growth in March, higher than its estimate of 6.1 percent," Syahrial Loetan, secretary to the state minister for national development planning, said Sunday.

Citing the IMF's assessment of the economy, Syahrial said the country's economy would continue to benefit from soaring commodity prices and that macroeconomic fundamentals would remain healthy as long as the government maintained fiscal sustainability.

"They said the decision to raise fuel prices was a bold move, considering its sensitive nature. However, they said that it sent a positive signal that Indonesia is maintaining its performance and rating in the eyes of global investors, and also keeping the currency at a healthy rate," Syahrial said.

On the downside, Syahrial said, the IMF warned the government of a spike in inflation in the coming months, but said "Indonesia is already experienced in controlling inflation".

During the meeting, he said, State Minister for National Development Planning Paska Suzetta told the IMF officials that within three to four years, the government would raise fuel prices gradually until they reached market prices.

The state minister also explained the government's plan to limit fuel consumption through a smart card program set for launch in January next year.

The program is hoped to keep fuel consumption below the national quota of 27.8 million kiloliters for gasoline and diesel this year, and ease the pressure of skyrocketing crude oil prices on state spending.

Syahrial said the IMF considered the program original, saying Indonesia was the first country in the world to carry out such a program.

Under the smart card initiative, consumers will be given fuel consumption quotas and will be required to show their smart card when purchasing fuel. Each card will be embedded with digital records of their fuel consumption over a given period.

"According to IMF, other countries will surely follow Indonesia if the program is successful," Syahrial said.

The IMF officials also advised the government to use its foreign reserves by investing them under the "sovereign wealth management" mechanism, he said.

Under this mechanism, a country can enhance the return on "excess" foreign reserves, as well as turn its natural resources into financial assets in order to reduce volatility.

"Should the foreign currency reserves be used for investments, their value could be leveraged, which could strengthen our currency in return," Syahrial said.(dia)

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