2012 Economic Report on Indonesia - Bank Sentral Republik Indonesia
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September 21, 2019

OVERVIEW

Indonesia’s economy performed well in 2012 amid a slowdown and uncertainty in the global economy. Economic growth was maintained at the robust level of 6.2%, with inflation remained low (4.3%) and controlled within its target range of 4.5±1%. Amid weaker exports performance, national economic expansion was driven mainly by strong domestic demand, buttressed by favorable macroeconomic and financial conditions. This condition has encouraged economic activities by the household as well as business sector . However, sanguine domestic demand during a phase of weaker exports performance has caused imbalances in the current account.

Indonesia’s economy is expected to post higher growth in 2013, although a number of risks and challenges must be anticipated. In line with global economic recovery, especially in the second half of 2013, Indonesia’s economic growth is expected to arrive at 6.3-6.8%, with inflation stays within Bank Indonesia’s target range of 4.5±1%. Domestic demand will continue to be the mainengine of economic growth. Notwithstanding, several risk factors and challenges remain and must be anticipated to maintain macroeconomic and financial system stability. First, rising fuel consumption amid declining domestic oil and gas production will continue to drive up imports of oil and gas and fuel subsidies, putting additional pressures on fiscal sustainability and current account deficit. Second, an economic structure with high dependency on imports, in particular imports of capital goods and raw materials, in the short-term may exposes vulnerabilities in the external balance as investment continues to expand Against this backdrop, Bank Indonesia policy will be directed toward efforts to achieve internal and external balance. To this end, Bank Indonesia policy aims to achieve the inflation target and maintain stability in the balance of payments. The policy direction will be achieved through five-pillar policy mix. First, monetary policy will be implemented consistently to contain inflation within the target range. Second, exchange rate policy will be directed to safeguard rupiah movement aligned with its fundamental. Third, macroprudential policy is designed to maintain financial system stability. Fourth, strengthened communication strategy to support the effectiveness of Bank Indonesia’s policy. And fifth, enhanced coordination between Bank Indonesia and the Government to support macroeconomic management and financial system stability.

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