BI and govt ready to anticipate The Fed’s decision

JAKARTA. BI (the Central Bank) and the government claimed to be ready to anticipate the increase in The Fed’s interest rate, which will likely be decided on 14 December 2016. In this case, BI will focus on foreign exchange reserves, while the government will focus on securing the 2016 fiscal deficit.

Executive Director of Economy and Monetary Policy Department Juda Agung said that BI has anticipated the increase in The Fed’s rate in a much earlier time. Therefore, it will not be surprising, he said, Tuesday (13/12). BI has prepared two lines of defense in anticipating The Fed’s decision, including by improving foreign currency reserves and increasing the bilateral swap agreements.

As of November 2016, Indonesia’s foreign exchange reserves dropped from US$ 115 billion as of October 2016 to US$ 111.5 billion, following BI’s decision to stabilize rupiah’s exchange rate.

Amid the decline in the foreign exchange reserves, BI has just recently signed the extension of bilateral swap arrangement (BSA) of US$ 22.76 billion debts with Bank of Japan. BI also has a worth of AUS$ 10 billion or US$ 7,3 billion Bilateral Currency Swap Arrangement (BCSA) with Reserve Bank of Australia (RBA). In November 2015, BI and China agreed to top-up the BCSA from US$ 15 billion to US$ 20 billion. BI also has a worth of US$ 10 billion BCSA with South Korea.

According to Juda, the repatriation funds of the tax amnesty program will be sufficient to strengthen the foreign exchange reserves.

Controlling deficit and inflation rate
In terms of fiscal, government will play roles in controlling the capital outflow. Head of Fiscal Policy Agency at the Ministry of Finance Suahasil Nazara said The Fed is likely to increase its interest rate.

However, the government is optimistic that market has estimated the impact of The Fed’s decision by monitoring the movement of rupiah exchange rate. In order to minimize the capital ouflow, the government will maintain the realization of 2016 Revised State Budget, mainly in terms of budget deficit.

According to the Ministry of Finance, as of the end of November 2016, the budget deficit stood at the level of 2.4%-2.5% of the GDP, or higher than the position at the end of October 2016 that stood at 2.14% of the GDP. “We are controlling the deficit at the level of below 3% of the GDP. We estimate that the deficit will remain at the level of 2.7% of the GDP,” Suahasil said.

In order to control the deficit, to date the government has been monitoring the realization of tax, customs, excises, and non-taxation revenues, as well as the budget absorptions.

The government will also monitor and control the inflation rate in the next year at the level of 4%. In order to increase the capital inflow in 2017, according to Suahasil, the government will issue the bonds with more attractive coupons. (Muhammad Farid/Translator)