Editorial: Weak Indicators Call For Urgent Action
Over the past few months Indonesia’s macroeconomic indicators have begun to weaken, with the stock market declining sharply and the rupiah continuing its slide.
The currency reached its lowest level in four years on Monday, trading at 10.451 against the dollar, and the Jakarta Composite Index dropped 5.6 percent, its biggest one-day decline in almost two years. Last week, Bank Indonesia, the central bank, said that the current account deficit in the second quarter soared to a record $9.8 billion.
Furthermore, inflation accelerated to 8.6 percent in July from 5.9 percent the month before, mostly due to the rising cost of goods after June’s subsidized fuel price hike. The central bank also raised its key interest rate to 6.50 percent from June’s 5.75 percent.
The growing current account deficit clearly is eating into our reserves and undermining economic stability. To stem this downward slide, Indonesia needs confidence-boosting measures and new policies to promote exports and better manage imports.
Finance Minister Chatib Basri said on Monday that he was “not worried” by a weaker rupiah and predicted that the current account deficit would narrow, though not immediately. Bank Indonesia Governor Agus Martowardojo suggested last month that the central bank was comfortable with the weakening rupiah because it helped exports, as long as the currency’s fall was not too abrupt.
And just last week, President Susilo Bambang Yudhoyono forecast the country’s economy would expand by 6.4 percent next year.
“In 2014, our trade balance is expected to improve because there are improvements in our export commodities,” he said. “The government will also prioritize domestic industries to lessen our dependence on imports.”
Clearly, the president knows what needs to be done. The question remains: how will the government respond to the latest challenges?