End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
- The Indonesian economy has rebounded in the second half of 2020, and the recovery is expected to accelerate in 2021 and 2022. Real GDP is projected to expand by 4.8 percent in 2021 and 6 percent in 2022.
- The macroeconomic policy mix is expected to stay accommodative in 2021. The commitment to gradually restore the pre-pandemic policy pillars should help further bolster market confidence, especially if backed by revenue measures.
- The strong structural reform momentum should be sustained, with financial deepening and digitalization, a medium-term government strategy to secure needed tax revenue to achieve long term development goals and greater social protection, and a transition toward a greener economy.
Washington, DC: An International Monetary Fund (IMF) team led by Mr. Thomas Helbling conducted virtual discussions on the Indonesian economy for the 2020 Article IV Consultation from November 25 to December 11, 2020. At the end of the virtual mission, Mr. Helbling issued the following statement:
"Indonesia has responded with a bold, comprehensive, and coordinated policy package to address the socio-economic hardship inflicted by the COVID‑19 pandemic. Timely policy interventions also helped safeguard macro-financial and external stability through a period of global market stress.
"The outlook is positive. Building on the economic rebound in the second half of 2020, real GDP is projected to expand by 4.8 percent in 2021 and 6 percent in 2022, led by strong policy support measures, including COVID‑19 vaccine distribution plans as well as improved global economic and financial conditions.
"The uncertainty surrounding the growth outlook is larger than usual. Early widespread vaccination is an upside risk, while delays could lead to a more protracted pandemic, a downside risk. The macro-financial fallout of the pandemic and economic downturn could be larger-than-expected, and credit conditions could be slow to improve.
"To secure the ongoing recovery, sufficient policy support will be essential. The accommodative macroeconomic policy mix expected in 2021 is thus welcome. For the medium term, restoring the macroeconomic policy framework (e.g., 3 percent of GDP budget deficit target) that has been appropriately and temporally suspended during the pandemic will reinforce Indonesia's prudent policy track record. A detailed fiscal strategy backed by revenue‑boosting measures would help in managing the balancing act.
"The fiscal policy settings planned for 2021 should help foster the recovery. While maintaining some pandemic-related emergency spending from 2020, the 2021 budget reallocates budget resources and potential carryovers for increased high-impact spending, notably public investment.
"Pursuing monetary accommodation, through a combination of lower policy interest rates and Bank Indonesia (BI)'s government bond purchases, is appropriate under the current exceptional circumstances. The authorities' plan to use only the market mechanism defined in April 2020 for BI's government bond purchases in 2021 will provide for a better balance between the benefits and risks associated with monetary budget financing by BI.
"The banking system remains stable, owing to bold and timely policy interventions. Adequate loan loss provisioning will nevertheless be critical for banks' ability to absorb rising asset quality risks. The authorities are also preparing a range of policy measures aimed at promoting bank lending, especially for SME financing. These measures could be complemented by additional, targeted policy steps if aggregate credit does not recover as expected. Meanwhile, the envisaged financial sector omnibus bill will address regulatory challenges and provide the legal foundation for further financial deepening, which complement other initiatives such as BI's money market deepening blueprint. BI's blueprint on digitally‑oriented payment systems will help improve monetary policy transmission, as well as economic and financial inclusion. The government's emphasis on the importance of safeguarding the operational independence of BI is welcome.
"The omnibus law on job creation should help lower obstacles to new job‑creating investment and boosting productivity. The implementation of the Regional Comprehensive Economic Partnership (RCEP) in Indonesia would reinforce these benefits for Indonesia. High‑quality governance standards in regulatory settings when implementing the omnibus law should be maintained.
"Indonesia's proactive policies tackling climate change issues could put further emphasis on a greener economy. At the same time, further progress in the monitoring and execution of adaptation plans towards increasing the resilience to climate change would be desirable, given Indonesia's high exposure to related natural hazards.
"The team exchanged views with officials in the government, Bank Indonesia, Financial Services Authority (OJK), other public agencies and representatives of the private sector. The team would like to thank the authorities for the frank and constructive discussions in the virtual meetings, as well as for the logistical support."
