Jakarta – The resilience of Indonesia's economy, which posted the third-fastest growth rate in Asia in the first quarter of 2009, has led the International Monetary Fund (IMF) to revise upward its 2009 growth projection for the country, which is Southeast Asia's largest economy.
The IMF said on Friday it has revised the full-year growth estimate from 2.5 to between 3 and 4 percent, although this is still lower than the government's estimate of 4 to 4.5 percent.
The IMF's senior resident representative for Indonesia Milan Zavadjil told reporters Friday that Indonesia entered the global financial crisis in a strong position and was thereby able to withstand the shocks, especially during the last quarter of 2008.
"There are signs of returning market confidence as indicated by the stronger rupiah, lower interest rates and recovery of the stock market," Zavadjil said at the conclusion of the IMF annual review of Indonesia's economy.
An IMF mission headed by division chief of the Asia Pacific Department Thomas Rumbaugh recently concluded a two-week assessment of the country's economic outlook. The team met with all economic ministers and the central bank's board of governors as part of its evaluation.
"Supported by election-related spending, the economy's resilience is also evident in the stronger-than-expected growth in the first quarter (4.4 percent), making it one of the fastest growing economies within the G20," Zavadjil added.
Therefore, he said, the IMF had raised its projection of economic growth to 3-4 percent for 2009, with inflation expected to fall to 5 percent by the end of the year.
However, Rumbaugh warned against complacency, pointing out there is still a great deal of uncertainty as the signs of the global economic recovery may not hold for the rest of the year.
Rumbaugh said despite the encouraging economic performance, careful economic management should continue due to the potential wave of further adverse swings in the global market.
"The government needs to accelerate the implementation of its fiscal-stimulus measures for the rest of the year to maintain the momentum of economic-growth."
Rumbaugh welcomed the steady decline in the central bank's benchmark interest rate, which currently stands at 7 percent, as it is expected lead to higher credit expansion and help support recovery in domestic investment.
Zavadjil added the monetary-easing cycle may soon run its course and policy adjustments may be needed if global risk aversion or external liquidity risks put pressure on the balance of payments position.
However, Rumbaugh said during the meetings with economics ministers over the past two weeks the government never hinted at the possibility of taking a new loan, even though the IMF had introduced a new flexible credit line facility, which is available without strings attached.
"No, the government didn't mention anything about it, as Indonesia really doesn't have any balance of payments problems and its foreign reserve is in a comfortable position," Rumbaugh added.
The IMF introduced a contingent line of credit facility early this year for countries facing speculative attacks on their currencies. Borrowers which take this facility are expected not to draw on it unless it is essential they do so, although it has the potential to generate market confidence in the borrower's ability to ride out the storm.
Rumbaugh said the soundness of Indonesia's financial sector had been strengthened with profitable and well-capitalized banks and improved supervision.