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strong>March 23, p1

Continued exchange-rate flexibility and limited market intervention on the rupiah could create a safety buffer for Indonesia ahead of the global financial shocks likely to occur this year, the International Monetary Fund (IMF) has advised.

In its recently released staff report on the country, the IMF warned that external risks in the global economy could exacerbate strains in the banking and corporate sector, as unexpected surges in financial market volatility could increase balance of payments and bank-funding pressures.

'€œIndonesia'€™s external position is found to be moderately weaker than implied by medium-term fundamentals and desirable policies,'€ the IMF wrote in its report.

Your comments:

While it'€™s a very technical article, the way I read it is that the main culprit of the problem is inflation. Well certainly. While the fuel price has dropped back to its original price of Rp 6,500 per liter, nothing else has come down in terms of prices.

This has caused an imbalance and put pressure on the rupiah to re-adjust.

What the people need to see is a concrete set of actions from the government to keep inflation in check.

Kortslet

If the Fed starts to increase its rates, it will be expensive for those in Indonesia who borrowed in dollars, and it could be a disaster because BI won'€™t have enough dollars: a crisis is brewing. That'€™s why they are desperate to apply policies that can generate dollars.

The subsidy was not a big deal, but a sweet deal: the easy part. Now the government is really limited in term of policies. The main player is BI.

Meanwhile, Jokowi is playing tough guy but actually he'€™s desperate to bring dollars into the country.

Sukajadi

BI has very few tools to work with. It is like having a car with one gear '€“ interest rates. Political solutions are needed, i.e. good fiscal policies to stop the exodus of money from Indonesia.

I think President Jokowi is basing too much on free-trade agreements that come with a burden of red tape and secret legislation that requires legislative changes and monetary compensation for breeches. It'€™s a minefield for the uninitiated, common sense economics and cool heads are required with a long-term strategy.

Acroplous

Remember the election campaign when Jokowi stated that the GDP growth goal was 7 percent.

Well, it is still stuck at 5.2 percent five months on, and I'€™ve yet to see one thing he has done to nudge it any closer to his goal.

In fact, all he has been doing is spooking foreigners with weird talk and drug executions.

Lasem Benny

Lasem Benny, since you obviously know everything, perhaps you could suggest a policy that could work magic in five months?

He dismantled the fuel subsidies. That'€™s massive. In the long term, it will work wonders.

Sudarshana Chakra

Our exports go to other markets, and our rupiah has gotten strong against many of those markets'€™ currencies, making our products more expensive, for example, for European buyers.

That is certainly not the way to improve the trade balance. BI urgently needs to see the whole picture.

The rupiah has lost 6 percent against the US dollar in recent months but has gained more than 15 percent against others including the Euro.

All major and non-major currencies have lost against the US dollar in recent months, but most of them have lost more than the rupiah.

Devinesia