In his address, Martowardojo stated that three main issues persist in the global economy and which have continued to exacerbate ongoing uncertainties in the domestic economy during 2013. Firstly, uncertainty about the pace of global economic recovery. Secondly, widespread uncertainty concerning policy indecision in the US (quantitative easing) and third is uncertainty surrounding commodity prices. Those three key global economic issues will unavoidably undermine economic performance in Indonesia. Furthermore, amid robust domestic economic expansion, global economic uncertainty places additional unwelcome pressures on the current account balance. Confronting such conditions, policies are directed towards ensuring that the rate of inflation remains under control, the rupiah exchange rate is maintained according to its fundamentals and the current account deficit is reduced to a more sustainable level.

In response to the challenges faced, Martowardojo stressed that the policy direction of Bank Indonesia toward the future, including during the period of political transition in 2014, will consistently strive to foster economic and financial system stability. Stability will remain the overarching priority to ensure a more balanced and sound economic structure, thus forming a solid foundation for economic transformation. Holistically, the policy direction of Bank Indonesia is implemented through a monetary, macroprudential and payment system policy mix.

In terms of monetary policy, the country's benchmark interest rate (BI rate) will consistently be used to control inflation. Exchange rate policies are implemented to steer rates according to their fundamental values and thereby functioning as a shock absorber. Monetary operations will continue a strategy of absorbing excess structural liquidity in a focused and measured way. Bank Indonesia will also continue to strengthen rupiah and foreign currency money market development and extend financial market deepening. Additionally, external resilience will continue to be built through financial cooperation with other central banks as well as financial authorities in the region.

In an effort to reinforce external sector resilience, Bank Indonesia will also institute macroprudential policy through supervisory actions directed towards bolstering the composition of credit to productive export-oriented sectors and advocate import substitution as well as redouble efforts to boost economic capacity. As the macroprudential authority, BI policy will aim to manage systemic risk, including credit risk, liquidity risk and market risk, as well as buttress the capital structure. In terms of managing liquidity risk, Islamic banks' reserve requirement will be amended and the Liquidity Coverage Ratio (LCR) applied gradually commencing on 1 January 2015. Under the scope of strengthening financial system stability, BI acknowledges the importance of building macro-micro coordination between Bank Indonesia and the Financial Services Authority (OJK).

Referring to payment system policy, Bank Indonesia will develop a more efficient domestic payment system industry through refinements to payment system architecture and broadening access to payment services. In its implementation, payment system policies are grounded in three main strategies, namely strengthening domestic industry structure, technical standardisation and a mechanism to enhance efficiency as well as broadening access to payment services. The first strategy is achievable through development of a National Payment Gateway. The second strategy is implemented by developing aspects of standardisation in the national payment system industry, and the third strategy is instituted as an integral part of financial inclusion policy that is underpinned by educational programs and consumer protection.

In addition to monetary, macroprudential and payment system policy, Bank Indonesia will also redouble efforts to strengthen polices associated with financial inclusion and micro, small and medium enterprises (MSMEs).

Paying due regard to the economic challenges faced and the policy direction pursued by Bank Indonesia and the central government, the domestic economy will remain in a phase of consolidation during the year 2014. Accordingly, solid economic growth is projected in the range of 5.8-6.2 percent. In terms of prices, the rate of inflation is forecast within its target corridor of 4.5 ± 1 percent, while credit growth is expected in the range of 15-17 percent, buoyed by a similar pace of growth in deposits.

From a medium-term perspective for 2015 to 2018, the global economy is predicted to grow on average by around 3.9 percent. Economic growth in Indonesia is expected to achieve 6.5 percent in 2018, if the array of economic transformation policies plays out as expected. Nonetheless, economic growth could stutter at around 6 percent if the transformation process does not progress as anticipated.

Bank Indonesia has released its vision for 2014, namely to become the best and most credible central bank in the region in order to achieve the key targets already mentioned. The attainment of this vision is predicated on Bank Indonesia ensuring that all potential resources function effectively through new strategic values as follows: (1) Uphold confidence and integrity, (2) Prioritise professionalism, (3) Seek perfection, (4) Prioritise the public interest, and (5) Strengthen team coordination and cooperation.

Source: Bank Indonesia

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