Category Archives: IMF

Indonesia Exposure to Global Risk is Limited: IMF

Jakarta Globe, July 21, 2011

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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

RI, IMF to discuss strategies to deal with hot money

Antara News, Thu, March 10 2011
Jakarta (ANTARA News) – Indonesian financial and investment authorities and the International Monetary Fund (IMF) will hold a high-level conference themed “Coping with Asia`s Large Capital Inflows in a Multi-Speed Global Economy” on March 11, 2011 in Bali.
Bank Indonesia (BI) in an announcement, on Thursday, said the one-day conference will bring together leading academics, researchers, investors and policymakers from Asia and other emerging market countries.
The conference, with BI and the Indonesia Investment Coordinating Board (BKPM as n hosts aims to provide an opportunity for discussions concerning the most recent developments regarding capital flows as well as ways to manage them effectively.
According to BI, the conference will allow policymakers from around the world to interact and share their invaluable experiences in managing capital flows at the gathering which will be jointly opened by BI Governor Darmin Nasution and IMF Director for Asia and the Pacific, Anoop Singh.
The theme of the conference is to cover the prospect of capital flows to emerging markets during the global recovery, and the appropriate policy response to benefit from the opportunities created by capital flows, including managing the risks
Another theme is on the challenge of channelling capital flows into long-term investment in order to bolster growth prospects and help facilitate balanced and sustainable global growth.
This conference represents a continuation of the previous conference in Daejeon, South Korea, in July 2010, where the IMF committed to strengthening new relationships with countries in the Asian region.
Editor: Aditia Maruli

IMF: RI banking system strong, well capitalized

The Jakarta Post, Jakarta | Sat, 09/25/2010 11:52 AM
Indonesia’s banking system is strong and well capitalized, as has been proven by impressive improvements in financial stability during the 2008-2009 financial crisis, says a senior official at the International Monetary Fund.
“Indonesia has made great achievements in the last decade to improve macroeconomic and financial stability, with fiscal and monetary policies playing a major part,” IMF senior resident representative in Indonesia, Milan Zavadjil, said to The Jakarta Post on Friday.
The intergovernmental institution overseeing the global financial system made the statement in response to recent local media reports on the IMF’s latest assessment on Indonesia’s economy. The tone of the local media on the report was perceived as negative by the IMF.
“Some recent media stories on the report have been misleading and I would like to clarify the results of the assessment,” said Milan, claiming that even the stress test result, perceived as negative in some quarters, was actually very positive.
The IMF, which viewed the banking system as vital to Indonesia’s economic wellbeing, said the local banks achievements have been significant and showed improving supervisory systems.
On Sept. 16, the IMF released data on a theoretical stress test reportedly to help measure the strength of Indonesian banks in the face of a severe hypothetical crisis with -5 percent economic growth. In the simulation, the level of non-performing loans (NPL) in Indonesian banks was projected to rise to 31.5 percent.
Bankers and analysts responded to the IMF stress test unanimously indicating that the projection was totally unrealistic, portraying almost inconceivable circumstances, especially given the current excellent state of Indonesian banks.
Bank Indonesia (BI) data showed that in the first half of this year, average banks loan growth reached 18.88 percent, while gross non-performing loans (NPLs) remained manageable at 3.5 percent. The capital adequacy ratio (CAR) stood at 18.06 percent in the period ending June 30, higher than the central bank’s currently required level of 8 percent.
Given the current figures, the central bank called the stress test scenario “unrealistic”. The government saw 2011 economic growth at 6.4 percent and is targeting 7.7 percent growth by the end of President Susilo Bambang Yudhoyono’s term in 2014.
“BI expressed objections on the IMF scenario, which was based extremely negative economic circumstances. Even in times of extreme crisis, the central bank would do everything it could to rescue the economy to avoid such a downturn,” BI spokesman Difi Johansyah said in a statement, adding that the stress test should therefore in no way be considered as a forecast.

Tackling Inflation Vital, IMF Warns Bank Indonesia

Jakarta Globe, Bloomberg & AFP | September 18, 2010

Trading results are displayed on an electronic board outside the Indonesia Stock Exchange on Friday. The IMF has warned that foreign investors will lose interest if the government does not tackle corruption. (AFP Photo)

Bank Indonesia should signal a greater readiness to boost borrowing costs amid signs of an accelerating economy, the third-strongest among Group of 20 nations last year, the International Monetary Fund said on Friday.
“I think they’ll need to be more proactive going forward on monetary policy,” Thomas Rumbaugh, division chief at the IMF’s Asia & Pacific Department, said. “We believe there needs to be a stronger commitment to reducing inflation and keeping it low.”
Rumbaugh’s comments come two weeks after Indonesian central bank chief Darmin Nasution said he wanted to avoid increasing interest rates by using lending and reserve rules for banks to contain inflation and stoke an expansion in Southeast Asia’s largest economy.
The IMF said gross domestic product would grow 6.2 percent next year from 6 percent this year and 4.5 percent in 2009.
Unlike policy makers in other parts of the region, including India, Malaysia and Thailand, Bank Indonesia has kept its benchmark rate unchanged at a record-low 6.5 percent for more than a year.
The rupiah has climbed 4.5 percent against the US dollar this year, less than the ringgit, baht and Singapore dollar. It was little changed at 8,985 on Friday.
President Susilo Bambang Yudhoyono aims to bolster growth, and is targeting an average 6.6 percent expansion through the end of his term in 2014.
“As long as we still can manage our monetary variables by other instruments, we will try to avoid changing the interest rate,” Darmin said earlier this month.
The central bank said this month that lenders would be required to set aside 8 percent of their deposits as primary reserves starting Nov. 1, up from 5 percent.
“They may be able to delay a rate increase a little bit longer because of the step they’ve taken on the reserve requirement,” Rumbaugh said.
Still, “the direction is clear, and they’re going to have to be proactive in terms of watching market developments.”
Rumbaugh also said capital inflows, as well as stronger credit growth, were “providing a boost to domestic liquidity.”
Lending rose 10 percent in 2009 and accelerated to a 19.5 percent pace in the year to July, the IMF said in its assessment of Indonesia’s economy.
The IMF urged BI to “signal its readiness to respond to rising inflationary pressures to anchor  expectations within the 4 percent to 6 percent target range.”
Consumer prices were forecast to rise 5.9 percent this year, after gaining 2.8 percent in 2009, the fund said.
“A proactive policy would also signal Bank Indonesia’s commitment to lower the level and volatility of inflation in line with trading partners,” the fund said.
The IMF also “generally cautioned against introducing administrative measures to fuel credit growth.”
While the fund described as “impressive” the performance of Indonesia’s authorities in guiding the economy through the global financial crisis, including being the only G-20 member with declining government debt in 2009, further fiscal reforms would be “necessary to support sustained high growth.”
“Specifically, reducing energy subsidies would create additional fiscal space for much-needed infrastructure spending and transfer programs for the poor, with little impact on debt sustainability,” the IMF said.
“Over the medium term, efforts should continue to improve public infrastructure and the business climate.”
Friday’s report also “commended” moves over the last decade to boost financial stability, as well as recent measures such as the enactment of the Financial System Safety Net Law.
The IMF report also said the government must make fighting corruption a priority if it wanted to build on its progress as one of the world’s best-performing economies.
Foreign investors  needed to fund Indonesia’s expansion into a regional powerhouse would be cautious until more was done to fight corruption and improve the rule of law.
“A decisive and successful response, as well as a decade of sound policies and structural reform, helped Indonesia recover quickly from the 2008 global crisis,” the report said.
“However, lingering concerns over weak enforcement of the rule of law, transparency, and governance issues weigh on market perceptions. Addressing these weaknesses should be a priority.”

Corruption Threatens Indonesia’s Economic Rise: IMF

Jakarta Globe, Stephen Coates | September 17, 2010

The International Monetary Fund has warned foreign investors about Indonesia’s corruption and rule of law, saying graft remains an obstacle to the country becoming a developed nation. (EPA Photo)

Jakarta. The International Monetary Fund warned on Friday that Indonesia must make fighting corruption a priority if it wants to build on its progress as one of the world’s best-performing economies.
Southeast Asia’s biggest economy expanded by 4.5 percent in 2009, the third fastest in the Group of 20, and is poised for accelerated growth in the years ahead, the IMF said in an annual report.
But it said foreign investors who are needed to fund Indonesia’s expansion into a regional powerhouse would be cautious until more is done to fight rampant corruption and improve the rule of law.
“A decisive and successful response, as well as a decade of sound policies and structural reform, helped Indonesia recover quickly from the 2008 global crisis,” the report said.
“However, lingering concerns over weak enforcement of the rule of law, transparency, and governance issues, weigh on market perceptions. Addressing these weaknesses should be a priority.”
The IMF praised Indonesia’s “remarkable achievements” over the past decade, as it transformed from the Suharto dictatorship into a flourishing democracy and recovered from near-bankruptcy in the 1998-1999 Asian financial crisis.
Indonesia was forced into a 43-billion-dollar bailout from the IMF in 1998, and only exited supervision by the Washington-based organization in 2003.
But the Fund said Indonesia “still faces challenges to preserve financial stability and develop its financial system”, especially in areas such as supervision and the development of the non-bank sector.
“Market participants view Indonesia as a country with great potential, supported by a large consumer base and rich in natural resources,” the report said.
“Yet, Indonesian securities continue to trade at a discount relative to regional peers and many wealthy Indonesian individuals still prefer to place their savings offshore.
“The financial sector lags behind comparable countries in terms of depth and contribution to the economy. This is because weaknesses in the legal and governance framework undermine investor confidence.”
It said one of the consequences of the legal uncertainty was that “large corporate borrowers have the economic clout to challenge contracts.”
As a result banks focused more on lending to consumers and small- and medium-scale enterprises.
Agence France-Presse

Indonesia Shows Greece There’s Life After Austerity in BRIC Bid

San Francisco Chronicle, Bloomberg News, Sunday, May 23, 2010

May 24 (Bloomberg) — If al-Qaeda-linked terrorists thought they could drive foreign investors out of Indonesia, they didn’t reckon with the likes of Jim Castle.

Seven years ago, Castle, a Michigan-born consultant for 100 multinational companies — including Citigroup Inc., Exxon Mobil Corp. and Nestle SA — was having lunch at Jakarta’s JW Marriott hotel when a truck bomb detonated outside the building, killing 12 people and injuring 150. Castle walked away unhurt.

Last July, he was less lucky while hosting a breakfast meeting at the same hotel. Two suicide bombers struck in near- simultaneous blasts at the Marriott and the nearby Ritz-Carlton. Nine people died in the attacks, and Castle clambered from the rubble grazed, dazed and with temporary hearing loss.

A year after that second escape, Castle, 64, continues to do business in Jakarta and shrugs off the dangers he faces, Bloomberg Markets reports in its July issue.

“More people here die from dengue fever than from terrorist attacks,” he says.

The resilience displayed by Castle, founder of CastleAsia, is paying off as the world’s fourth-most populous nation — home to the single largest Muslim population — basks in a consumer and resources-driven boom.

“Indonesia’s potential is dramatic,” says Hugh Young, who helps manage $260 billion, including Indonesian shares, at Aberdeen Asset Management Plc in Singapore. “It is resource- rich, has lots of people and some of its companies are as good as any you will find in Asia.”

Beating the BRICs

Indonesia’s $514 billion economy, the biggest in Southeast Asia, will grow at 6 percent this year, up from 4.5 percent in 2009, the International Monetary Fund forecast in April. That would make the nation of 240 million the best-performing economy after China and India among the Group of 20 countries — outpacing both Brazil and Russia, the two other emerging giants grouped with China and India as the so-called BRIC economies.

Now, both Goldman Sachs Group Inc. and Morgan Stanley say Indonesia is a contender to be included in the BRIC club. Yet analysts disagree on exactly when the acronym will get an extra I. Chetan Ahya, a Singapore-based managing director at Morgan Stanley, says Indonesia should be considered for BRIC status if gross-domestic-product growth nears 7 percent next year.

Jim O’Neill, the London-based Goldman Sachs chief global economist who came up with the emerging-nation designation, says it will take much longer because he believes a true BRIC economy should be near to 3 percent of global GDP, while Indonesia currently accounts for just 1 percent.

‘Great Potential’

“Indonesia has the ultimate potential,” O’Neill says. “It has done well post-crisis and is showing signs of sustainable demand growth.”

Investors say Indonesia — a lush archipelago of 17,500 islands that stretches like a 5,100-kilometer (3,170-mile) chain of stepping stones from the Southeast Asian mainland to northern Australia — is finally unlocking its full potential. The country is the world’s No. 1 exporter of coal used in power stations and contains the largest gold mine and the single largest recoverable copper reserve.

It’s also the biggest supplier of palm oil — used in one- third of the world’s frying pans and woks — and the third- biggest exporter of natural gas. Indonesia is also geographically blessed due to its proximity to Japan and China, its two biggest export markets.

Domestic Market

Both U.S. president Barack Obama, who lived in Indonesia as a child, and China’s premier, Wen Jiabao, scheduled June visits to Jakarta to strengthen relations. Trade between Indonesia and China more than doubled to $25.5 billion from 2005 to 2009. During the same period, U.S.-Indonesia trade rose about 20 percent to $18 billion.

At home, an emerging middle class is driving economic growth. Although 33 million Indonesians live in poverty, the World Bank says, the country has a middle class of 35 million. Unlike in many export-dependent Asian countries, private domestic consumption accounts for 61 percent of Indonesia’s GDP.

“It looks to us that more wealth is trickling down than in the past,” says Eugene Galbraith, chairman of PT Bank Central Asia, Indonesia’s biggest financial services company by market value. “There are tens of millions of households on the edge of making the leap into the bankable class.”

President Susilo Bambang Yudhoyono, a retired general first elected in 2004, heads a government sprinkled with Western- educated technocrats that has halved interest rates and signed a free-trade agreement with Japan. Under his Vision for Change program, he pledged to boost foreign investment, raise living standards, fight endemic corruption and fix crumbling roads and power grids. His initial efforts lured investors and lifted more people out of poverty.

Pace of Prosperity

Under Yudhoyono, 60, foreign direct investment reached $14 billion last year compared with $4.6 billion in 2004. Per-capita income has doubled to $2,300, while interest rates are at a record low 6.5 percent. The pace of prosperity has quickened. Indonesia’s currency, the rupiah, gained 10.4 percent against the U.S. dollar in the 12 months ended on May 21, making it the best performer among 26 leading emerging markets. On March 12, Standard & Poor’s raised Indonesia’s credit rating to BB from BB-, two levels below investment grade. London-based Standard Chartered Plc predicts Indonesian debt will reach investment grade by 2012.

Yudhoyono is fighting back against Islamist terror factions. Since the attack on Jim Castle’s business breakfast, Indonesian security forces have arrested or killed scores of suspected terrorists. Among the dead: Noordin Mohammad Top, the al-Qaeda- linked terror chief who the U.S. says masterminded both Jakarta hotel attacks and the 2002 nightclub bombings on Bali in which 202 people died.

Attack Foiled

On May 12, Indonesia’s anti-terror squad killed five suspects who were plotting an attack on Yudhoyono at the country’s Aug. 17 Independence Day ceremonies.

Now, the challenge for Western investors is to decide whether Indonesia’s $234 billion stock market is overheated. Indonesian shares have outperformed those of all their BRIC rivals.

The Jakarta Composite index, which soared 87 percent in local currency terms in 2009, has risen another 3.5 percent by the same measure this year as of May 21 even after last week’s global sell-off. By comparison, Indian stocks were down 5.8 percent for the year through May 21 as measured by the rupee; Russian shares were down 10.2 percent in Moscow’s dollar- measured index; while Brazilian shares were down 12.1 percent and China’s Shanghai composite index plunged 21.2 percent in their local currencies.

Bubble Concerns

Last month, the central bank said that Jakarta shares were in a bubble.

“The actual stock price now is actually exceeding the fundamental value,” Perry Warjiyo, the bank’s head of economic research and policy, said on April 8.

Older investors know how quickly things can change in Indonesia, a former Dutch colony that declared its independence in 1945. In 1967, the dictator Suharto became president after crushing a coup attempt, an era immortalized by both Christopher Koch’s novel The Year of Living Dangerously and the Mel Gibson movie of the same title. Under Suharto’s rule, government- aligned businessmen exploited an economy reliant on crude oil exports, which hummed along at a pace of 7 percent annual growth in the 10 years from 1987.

IMF Rescue

That came to an abrupt halt in 1997, when financial turmoil spread south from debt-ridden Thailand. The crisis devastated the Indonesian economy: From July 4, 1997, to June 17, 1998, the rupiah plunged 85 percent against the dollar. Loaded with debt borrowed in dollars, hundreds of Indonesian companies, including more than a dozen banks, became insolvent. In October 1997, the IMF stepped in with a $43 billion rescue package that forced the breakup of some Suharto-controlled monopolies. Within a year, prices for basic food items such as rice and cooking oil jumped by more than 200 percent, triggering street protests. Suharto, then 76, was pressured by his own allies to resign in May 1998.

IMF crisis management measures in Indonesia — which delivered long-term fiscal responsibility at a cost of short- term political unrest — are similar to those being imposed on Greece. In April, Greece agreed to raise taxes, reduce pension rights and cut public worker pay to slash a budget deficit estimated by the government to be 14 percent of GDP. In return, the European Union and the IMF are providing 110 billion euros ($134 billion) in emergency loans.

‘Amazing’ Transformation

“Indonesia after the financial crisis was where Greece is today,” says Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney, which oversees the equivalent of $90 billion. “The transformation has been amazing.”

Indonesia’s external debt, which hit 150 percent of GDP in 1998, was 27 percent in March. The political transformation from dictatorship to democracy took less than a decade. Three presidents presided over the country in the four years after Suharto’s departure. Yudhoyono won office in the first direct presidential elections in 2004. Four years later, he pulled his country out of OPEC, the bloc of oil-producing nations, after lack of investment and domestic energy demands transformed Indonesia into a net importer of crude. Yudhoyono won a second five-year term in 2009 after promising to more than double foreign investment to $35 billion within five years.

Power Struggles

To do so, he’ll have to confront internal power struggles among Indonesia’s political elite.

“It is hard to exaggerate the importance of the fights taking place in government today,” says Kevin O’Rourke, Jakarta-based author of Reformasi: The Struggle for Power in Post-Soeharto Indonesia (Allen & Unwin, 2002). “It is a continuation of tensions between reformers and the remnants of the elite who prospered under Suharto-era patronage.”

Those fault lines were evident in March when Indonesia’s parliament, including some members of parties that support Yudhoyono, voted for a police investigation into alleged mismanagement of a 6.7 trillion rupiah ($723 million) bank bailout in 2008. The deal was approved by then-Central Bank Governor Boediono — one of millions of Indonesians who have only one name — and former Finance Minister Sri Mulyani Indrawati, the most senior woman in the government. Both have said the deal was necessary to save the financial system. Sri Mulyani, 47, who has a doctorate in economics from the University of Illinois, resigned from the government in May to be a managing director at the World Bank. Yudhoyono replaced her with Agus Martowardojo, 54, president director of PT Bank Mandiri, the country’s biggest lender by assets.

Growth Resolve

Boediono, now Indonesia’s vice president, says the government is targeting annual GDP growth of 7.3 percent by 2014.

“Growth must be accelerated, and this is our resolve,” says Boediono, who has a Ph.D. in economics from the University of Pennsylvania’s Wharton School. “We are lucky. Our commodities are in great demand at the moment, but we should not be complacent.”

Some wealthy Indonesians fret that income disparities could spark instability.

“I have become richer, but not the people,” says Sofjan Wanandi, chairman of the Employers Association of Indonesia and head of the closely held Gemala Group. “The country needs to grow faster.”

Indonesia bulls such as Patrick Walujo, founder of Jakarta- based private equity firm Northstar Pacific Partners, are betting that the government will deliver greater growth.

More Competition

Since 2006, Indonesian-born Walujo, 35, has teamed up with Fort Worth, Texas-based TPG Capital and other international fund managers to invest more than $1 billion in companies such as PT Bank Tabungan Pensiunan Nasional, a lender whose shares have risen 74 percent this year to May 21, and PT Delta Dunia Makmur, a coal mining services company.

“When we started out in 2003, nobody wanted to look at Indonesia,” says Walujo, who studied in the U.S. at Cornell University and worked as an associate at Goldman Sachs in New York. “Now, we are seeing much more competition.”

Many key investment opportunities stem from the government’s effort to modernize by spending $140 billion on public works.

“It boils down to two things: building 20,000 kilometers of roads and adding 15,000 megawatts of power generation over the next five years,” says Gita Wirjawan, a Harvard-educated former banker who is chairman of Indonesia’s Investment Coordinating Board. “I believe in the old Chinese adage that if you want to get rich, you build a road.”

Mining Riches

Among U.S. investors lining up to win contracts: General Electric Co., the world’s biggest maker of power-plant turbines and railway locomotives. The Fairfield, Connecticut-based company aims to make an additional $1 billion in revenue by 2014 from new infrastructure projects in Indonesia, according to David Utama, GE’s Jakarta-based country president. GE won’t disclose how much it currently earns in Indonesia.

The surging demand for Indonesian resources is perhaps most apparent on the remote east coast of Borneo, the world’s third- largest island, where former headhunters still live in longhouses and orangutans build nests in a diminishing jungle.

One recent Monday just north of the equator, nine bulk carriers are anchored in shimmering heat off the palm-fringed port of Sangatta in East Kalimantan province, waiting to fill their hatches with coal from the world’s biggest thermal coal mine.

Quality Coal

Twelve kilometers inland, inside pits up to 400 meters (1,300 feet) deep and 2.5 kilometers wide, trucks with tires twice the size of the men and women who drive them cart coal to conveyor belts that whisk the haul through the jungle to the port.

Last year, owner PT Bumi Resources dug 60 million tons of coal from Sangatta and other mines it owns in Borneo. By 2012, it aims to have almost doubled exports to 111 million tons. Last year, Beijing’s sovereign wealth fund, China Investment Corp., loaned Bumi $1.9 billion to help it reschedule debt.

“Operationally, Bumi has some of the best mines in the world,” says Adam Worthington, a Singapore-based analyst at Macquarie Capital Securities Pte, a unit of Australia’s biggest investment bank, who has an “outperform” rating on the stock. “Extraction, transport and labor costs are low, and the coal quality is very good.”

Bumi’s potential may be blunted by a lack of corporate transparency that shadows too many Indonesian businesses. The mining company is controlled by the family of billionaire politician-businessman Aburizal Bakrie, a former Suharto associate.

Investment Risks

When the global credit crunch hit in 2008, the Bakrie family holding company, PT Bakrie & Brothers, had $1.1 billion of debt that had been raised by pledging shares in Bumi and other listed units. Bumi shares plunged 32 percent on Oct. 6, 2008, and then were suspended from trading for a month — at a time when Aburizal Bakrie was serving as welfare minister. Since then, the loans have been restructured by the company’s lenders and the stock has risen fivefold from its lows.

“For those investors willing to bear the corporate governance risks, Bumi is attractive,” Worthington says. Aburizal Bakrie didn’t respond to requests for an interview.

Investors will soon have the chance to bet on arguably Indonesia’s least-likely success story: PT Garuda Indonesia, the state-owned airline with a once miserable safety record. In 2007, the EU banned the airline from Europe’s airspace on safety grounds after flights operated by Indonesian carriers suffered three fatal air crashes that killed 272 over two years.

Airline Turnaround

In 2004, one Garuda passenger was even murdered in flight. Munir Said Thalib, 39, a human rights lawyer who had investigated abuses by Indonesia’s military, was on his way to Amsterdam when he died midair from arsenic poisoning. An off- duty Garuda pilot who had been sitting in the next seat was jailed for 20 years for the crime in 2008, which prosecutors said during the trial was carried out for Indonesia’s intelligence agency.

Five years ago, Yudhoyono gave Emirsyah Satar, a Paris- educated diplomat’s son, the job of rescuing the airline. “We were losing money on 85 percent of our routes, and our planes were always late,” Satar says.

He called in foreign experts to audit Garuda’s safety practices, retrained pilots and retired old planes. Regaining customer confidence helped the airline make a profit of 1 trillion rupiah in 2009, just three years after getting a 1 trillion rupiah cash injection to stay in business. The EU flight ban was lifted in July 2009. Now, Garuda is preparing to sell as much as $300 million worth of shares in the third quarter as it seeks to double the fleet to 116 planes by 2014. The transformation of an outcast airline into an investment opportunity may be the surest sign yet that Indonesia is ready to join the emerging-market big leagues.

–With assistance from Greg Ahlstrand, Berni Moestafa, Yoga Rusmana, Achmad Sukarsono and Aloysius Unditu in Jakarta, Netty Ismail in Singapore and David Ellis in London. Editors: David Ellis, Jonathan Neumann

IMF warns of acute debt challenges for West

John Lipsky believes that high levels of governmetn debt could slow growth Photo: Bloomberg
The International Monetary Fund has warned that advanced economies such as the UK and US are facing an ‘acute’ challenge in reducing debt loads following the financial crisis, a problem which could in turn hamper economic growth.
John Lipsky, the IMF’s first deputy managing director, said that high levels of government debt and fiscal deficits have already led to increased risks for a number of countries.


Mr Lipsky cautioned that such problems could slow economic growth over the medium-term and trigger higher interest rates.
“Maintaining public debt at its post-crisis levels could reduce potential growth in advanced economies by as much as half a percentage point annually compared with pre-crisis performance,” he said in a speech in Beijing.
He went on to say that for “most advanced economies’ ” fiscal consolidation should begin in earnest in 2011, and gave warning that simply unravelling stimulus programmes would not be enough.
Mr Lipsky cited evidence that all G7 countries except Germany and Canada will have debt-to-GDP ratios close to or in excess of 100pc by 2014.
“This surge in government debt is occurring at a time when pressure from rising health and pension spending is building up,” he continued.
In a separate speech in Hanoi, Mr Lipsky said the global economy will rebound by 4pc in 2010 and 4.25pc in 2011.
However, what the IMF terms the “emerging Asia” region – including China and India – will grow at more than twice the pace, with an economic growth rate of 8.25pc estimated in the current year.


http://www.telegraph.co.uk/finance/economics/7500211/IMF-warns-of-acute-debt-challenges-for-West.html