Indonesia Exposure to Global Risk is Limited: IMF

Jakarta Globe, July 21, 2011


Indonesiafaces limited exposure to a large exit of foreign capital at a time of globalrisk aversion due to strong fundamentals and relatively low dependence onexternal demand, the IMF said on Thursday.

TheInternational Monetary Fund cited the country’s strong export growth, includingin manufacturing, and said the continued flexibility of the rupiah’s exchangerate would help protect against volatile cash inflows.

Thecomments come as Indonesia’s central bank tries to cap huge inflows of foreigncash from investors seeking higher interest rates than in the West, which itfears could trigger economic instability.

“IndonesianGDP growth is projected to remain robust at around 6.5 percent in 2011--12,”the IMF said in a statement following a consultation with Indonesian officialsand central bankers.

“Increasesin both foreign and domestic investment are supporting growth, whileaccelerating credit growth and expected reductions in energy subsidies shouldpush core inflation modestly higher this year and into 2012,” it said.

The fundalso urged Indonesia to reduce fuel subsidies so that it could boost spendingon infrastructure and social welfare.

IMF,however, said there was a risk of higher inflation if the government cut energysubsidies, and that the central bank would need to “act decisively” if thegovernment took that course.

Agence France-Presse

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