Despite the World Bank and International Monetary Fund (IMF) having revised down their forecasts for Indonesia's economic growth in 2014, the Center for Economic and Public Policy Studies (Pusat Studi Ekonomi dan Kebijakan Publik) expects that the country's economy will grow stronger in 2014 than this year. In 2014, the World Bank and IMF expect Indonesia's gross domestic product to grow 5.4 percent and 5.5 percent respectively. Both estimates are 0.2 percent down from their GDP growth forecasts for the year 2013.
Economist A. Tony Prasetiantono, Head of the Center for Economic and Public Policy Studies, disagrees with the World Bank and IMF's stance that Indonesia's economic growth will slow further in 2014 as the economies of both China and the United States are expected to improve in 2014 compared to their performances in 2013. Therefore, Indonesia will feel the positive impact of higher growth in the world's two largest economies next year and this should translate into better economic performance of Indonesia as well. According to the World Bank, the economy of the United States will grow 2.6 percent in 2014, significantly up from its 1.7 percent growth forecast for 2013. China's economy is expected to grow 7.7 percent in 2014, slightly up from expected growth of 7.5 percent in 2013.
GDP Growth Projections
annual percent change
Source: World Bank
However, the Indonesian government and central bank (Bank Indonesia) prefer financial stability over stronger GDP growth. By using a number of monetary instruments, they are eager to curb the country's wide current account deficit and high inflation. For example, credit growth in the banking sector is being slowed down using the benchmark interest rate (BI rate) as well as tighter policies with regard to down-payments, the minimum reserve requirement and loan to deposit ratio. In recent years, credit growth in Indonesia grew over 20 percent per year, while the non performing loans ratio (NPL) and capital adequacy ratio (CAR) were maintained at safe levels. For 2014, however, Bank Indonesia targets credit growth of between 15 and 17 percent. Such slowing credit growth will come at the expense of economic expansion.