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he latest report of the International Monetary Fund (IMF) cited lower-than-expected growth in China and Japan '€” Indonesia'€™s largest trading partners '€” as well as volatile global financial conditions and a sustained decline in commodity prices as the main downside risks facing the country'€™s economy this year.

This means that the country'€™s central bank, Bank Indonesia, will likely not have room in the near future for easing its monetary policy as a relatively tight monetary regime is needed to provide a strong anchor for inflation expectations.

A tight monetary policy also is required because, compared with other emerging economies, the Indonesian banking system appears more vulnerable to potential funding outflows. Smaller banks are exposed to greater liquidity risks as their funding is more dependent on short-term deposits, whereas larger banks receive more of their funding from current and savings account deposits, which are more stable than term deposits.

The IMF concluded earlier in March after its annual review of Indonesian policies (Article IV consultation) that banks could experience renewed funding pressures if deposit growth lagged behind credit expansion. The quality of corporate loans could also worsen.

Standard & Poor'€™s rating services also noted in its report last month that tighter funding conditions in Indonesia could lead to a slower loan growth within the next 12 to 18 months.

 The outlook of government pump priming (fiscal stimulus) is not bright either. If 4.7 percent economic growth '€” the slowest over the past six years '€” in the first quarter is any guide, the government may have to cut down its spending plan. The big expenditure boost for infrastructure planned after the slash in fuel subsidies may not fully materialize due to lower-than-estimated tax receipts. Pushing up investment on infrastructure also risks increasing the current account deficit because of the high import content of big projects.

The Asian Development Bank did predict in its latest report in March that the government could, if required during this year, accommodate a more expansionary fiscal position after the big cut in fuel subsidies.

But this estimate is based on the assumption that the new government'€™s rapid reform momentum is maintained, especially the acceleration in budget disbursement and concerted efforts are stepped up to reduce logistics costs and to improve the overall investment climate.

True, in the absence of any push from external factors as exports will continue to be weak, domestic household consumption remains the growth driver that can be fired. But the caveat is a big risk of economic overheating as the current account deficit could rise again, pressuring down the rupiah with all its negative ramifications on inflation.

Throughout last year, Indonesia recorded a US$26.2 billion deficit in the current account, the broadest measurement of trade, with the shortfall equivalent to 3 percent of gross domestic product (GDP), among the highest in the region.

Hence, the best and most appropriate policy this year is to focus on maintaining stability, instead of going all out to push growth by boosting domestic consumption.