The above was an excerpt from the Indonesian Economic Report 2005, a report containing comprehensive report and Bank Indonesia’s view on the economy for the year 2005, economic challenges and prospects, and policy direction ahead. The report was launched during the seminar on “Challenges in Encouraging Investment Increase and Real Sector Activities” held on Monday, 20 March 200, in Bank Indonesia Jakarta. The discussion was also in line with the issuance of Presidential Instruction (Inpres) No.3 Year 2006 concerning the Policy Package to Improve Investment Climate which contains a set of programs and actions aimed to improve investment climate covering various aspects. “In the year 2005, Bank Indonesia issued several policies aimed to restore macroeconomic stability. In order to support the tight biased monetary policy in controlling inflation, Bank Indonesia issued various policy packages aimed to control exchange rate volatility by way of controlling speculative transactions, controlling excess liquidity in banks, and maintaining coordination with the government in managing the demand for foreign currencies,” explained Bank Indonesia Governor, Burhanuddin Abdullah, during the opening of the seminar.
The seminar presented Hartadi A. Sarwono, Bank Indonesia Deputy Governor, who talked about the economic prospects, risk factors faced, and the direction of monetary and banking policies. Pradjoto, a banking law expert, presented his view on legal certainty and good governance as efforts to increase investments. Meanwhile, Komara Djaja, Secretary of the Coordinating Minister of Economic Affairs, discussed steps for implementing the policy package to improve investment climate, as well as future infrastructure development.
Burhanuddin also presented Indonesia’s economic prospects for 2006, in which the economic growth is estimated to be within the range of 5.0-5.7% and inflation rate would decrease in line with exchange rates that are stable and tend to strengthen. Recovered economic activities are estimated to occur in the second semester of 2006 due to the possibility of improved investment climate and business certainty. Meanwhile, rupiah exchange rate development in 2006 is predicted to be relatively stable with a tendency to strengthen gradually in line with improvements in private sector capital flows, improved risk premiums, and the end of global monetary tightening cycle. The source of supply for foreign currencies particularly from FDI is expected to improve and thus would decrease exchange rate volatility compared to year 2005. In line with the strengthening exchange rates, inflationary pressure is expected to decrease further and reach 7-9% (yoy) by the end of 2006.