Bank Indonesia sees 5.4% growth this year as too optimistic

The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta.
The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta.PHOTO: REUTERS

JAKARTA (BLOOMBERG) - Indonesia's central bank said economic growth of 5.4 per cent this year is too optimistic and the nation should aspire for higher credit ratings to catch up with Southeast Asian peers.

"In our view, the 2017 growth rate should be higher than 2016," Bank Indonesia senior deputy governor Mirza Adityaswara said in an interview in Jakarta on Friday (May 26). "Maybe 5.4 per cent is still a bit too aggressive, but we think 5.1 per cent to 5.2 per cent is still a possible number to achieve in 2017."

Indonesia won an investment-grade score from S&P Global Ratings this month after the government took steps to boost revenue and control spending. While the economy is gradually recovering, growth is still short of the 7 per cent initially targeted by the president when he came to office in 2014.

"We have to use the improvement in the credit rating to challenge ourselves to get further improvement," Adityaswara said. Improving the current account balance is key, which means the nation needs to diversify into non-commodity exports and push for stronger tourism, he said.

While Indonesia is Southeast Asia's largest economy, neighbors including the Philippines, Thailand and Malaysia all enjoy higher ratings from S&P. The economies of the Philippines and Malaysia also expanded at a faster pace last quarter.

Global funds poured a record US$6 billion into rupiah securities this year, helping to drive Indonesia's 10-year yield down by the most in Asia. Fitch Ratings and Moody's Investors Service already rates the nation at investment grade and Goldman Sachs Group said in March an S&P upgrade may help attract as much as US$5 billion in funds from Japan alone.

"Considering that the global situation is quite stable, what we can expect is funds from Japan, and also funds from maybe European and American pension funds that are purposely not in Indonesia yet to come," he said.

"The key for us is to maintain prudentiality in managing the macro," Adityaswara said. "The government manages the fiscal prudentiality, while Bank Indonesia maintains prudentiality in the monetary policy, basically to make sure inflation is under control and the current account deficit is under control."