External Events Not Helping

Last week, we witnessed several global events, each raising doubts of a quick Indonesian economic recovery this year. Even Bank Indonesia has recently revised down their 2016 growth projections from their earlier 5.4 percent estimate to its current subdued 5.2 percent. Plus, several government options to spur growth are quickly narrowing down to a limited few.

One of these events was last week's G-7 meeting in Tokyo, where seven major industrialized countries failed to reach an agreement on how best to coordinate monetary and fiscal policies to revive their lackluster economies. For example, the Japanese government still wanted to prevent its currency from strengthening further so it can push exports and limit imports, which was promptly opposed by the United States. There were also differences on how best to push growth. Some preferred a loose monetary policy that brings down interest rates, while others felt that a more aggressive fiscal policy, involving more government spending was called for. Unfortunately, this means that global economic growth will remain weak and cannot be relied on to boost Indonesian economy through exports.

May 31, 2016