Indonesia's Finance Minister Chatib Basri is optimistic that Indonesia's economic growth can reach 5.8 to 6.0 percent in 2014. According to Basri, three factors support this expectation: strong household consumption, an improving global economy, and the impact of Indonesia's legislative and presidential elections (scheduled for April and July 2014). However, one of the biggest challenges for the Indonesian government will be to offset the impact of further US Federal Reserve tapering and US interest rate hikes in 2015 and 2016.
Basri stated that one of the solutions to offset the negative impact of US monetary tightening is to curb the current account deficit further. Since the record high current account deficit in the second quarter of 2013 (USD $9.9 billion), it has eased to USD $8.4 billion and USD $4.0 billion in the third and fourth quarter of 2013. This moderating trend helped to regain confidence of international investors causing Indonesia's benchmark stock index and rupiah exchange rate to be one of the world's best performers in 2014.
After the FOMC meeting on Wednesday (19/03), Chairwoman Janet Yellen said that the Federal Reserve will continue to cut its bond-buying program by USD $10 billion per month and aims for an interest rate hike in 2015 (from 0.25 percent to 1.0 percent) and in 2016 (to 2.25 percent). This immediately resulted in capital outflows from emerging markets the following day.
However, slowing economic growth of China, Japan and India, as seen in the first quarter of 2014, also forms a risk to Indonesia's economic expansion as these three countries are strategic partners of Indonesia, both in terms of trade and investment.