T

he best recipe for an emerging market like Indonesia to expand its economic engine beyond current capacity is to be more agile in carrying out structural reforms while remaining cautious in managing its fiscal and monetary policies.

That is the latest suggestion put forward by the International Monetary Fund (IMF) and the World Bank during their annual meeting on Tuesday.

Indonesian policymakers will have to join their peers around the world in not standing idly when the global economy offers the chance to drive their countries’ growth higher as shown in the IMF’s October publication of the World Economic Outlook report.

In the report, the IMF highlights that global economic growth may reach 3.6 percent and 3.7 percent in 2017 and 2018, respectively, both of which are 0.1 percentage point higher compared to its estimate back in April, suggesting a limited recovery.

The incomplete recovery is the result of a mixed growth situation where some countries are still lagging behind and inflation often remains below target, while at the same time, some regions, including emerging Asia, had better-than-expected outcomes during the first half of this year.

That means policymakers should seize opportunities without delay by taking more action through structural reforms that raise economic resilience, investments in people, especially the young,and an advanced monetary policy to guard stability.

Structural reforms, for instance, could be done through higher infrastructure and educational spending if the countries had fiscal space, as they would help boost global demand, the IMF suggested.

“Policymakers should seize the moment: the recovery is still incomplete in important respects, and the window of action the current cyclical upswing offers will not be open forever,” said Maurice Obstfeld, IMF chief economist.

The World Bank expressed similar views in its October edition of the East Asia and Pacific Economic Update, that the stronger global economy might help Indonesia’s growth to pick up, but domestic risks in the country remained ‘substantial.’

The bank cited political and policy uncertainties as examples of factors that remained on the rise with the looming regional and presidential elections in 2018 and 2019, respectively.

It also pointed out that expansionary monetary and fiscal policies with a tight labor market could lead to a bout of increased inflationary pressures, which would have a dampening effect on private consumption, and hence overall economic growth.

The tight labor market in Indonesia refers to a situation where companies have a hard time finding qualified workers as more than 60 percent of Indonesia’s workforce is not high school educated.

Indonesia’s private consumption, which accounts for more than half of the country’s gross domestic product (GDP), grew by only 4.95 percent in the second quarter of this year, compared to the usual growth rate of around 5 percent.

The situation has affected the country’s economic growth in the second quarter, when the rate stagnated at 5.01 percent from the first quarter.

Speaking under condition of anonymity, an IMF official said there was no reason that Indonesia could not grow its economy at a high rate, but the country had a long list of things to do to maintain political stability, good governance, sensible economic policies, openness to trade and investment as well as stable inflation.

Economic activity this year is projected to expand by 5.2 percent in Indonesia, 5.4 percent in Malaysia, 6.6 percent in the Philippines, 3.7 percent in Thailand and 6.3 percent in Vietnam, partly because of stronger-than-expected external demand from China and Europe, the IMF report noted.