budi mulya : indonesian economy – recent developments and challenges address by mr budi mulya, deputy governor of bank indonesia, at the oversea - chinese banking corporation ( ocbc ) global treasury economic and business forum, singapore, 9 july 2010. * * * first of all, i would like to thank ocbc bank for the invitation to join in today ’ s global business community forum. the event like what we have today, become more important recently since authorities as well as business leaders worldwide, have been faced with one of the most challenging episodes post 2008 and 2009 global crises. authorities are facing high uncertain environment and have to deal with more delicate policy dilemmas to ensure the sustainability of global economic recovery process. hence, it is always a benefit to exchange view with market and business leaders to obtain a more convergence perception with regard to the stage of the economy and authority ’ s policy responds. this is because communication, such as through dialogue we have today, in particular with regard to the nature, the scope and the objective of policies taken by authorities, become more crucial to maintain market confidence and hence, to reduce uncertainty. market confidence poses an important factor to ensure the efficacy of various policies taken by authorities. it could be obtained when the rationality of the policies taken are well understood as intended. hence, it will gain in a convinced behavior with regard to the policy implementation. further, maintaining market confidence is even more imperative in the aftermath of the onset of euro zone crisis early this year, where coordination among authorities globally has been at the most challenging stage. this is because country specific factor, including political involvement, become increasingly materialize. yet, from various international coordination forums, such as the latest g - 20 meeting in toronto last month, we all observe that the nation leaders ’ awareness with regard of policy coordination is held firmly. the agreement to together pursue a sustain path of global economic recovery and to achieve a more balance global growth as reflected in “ growth friendly fiscal consolidation plans ”, is a strong evidence to that. one thing that i would like to highlight, with regard to the communication aspect as i have mentioned, is that the demand for policy clarity and transparency – without delay – is increasing, including the demand for very details macro economic data or statistic. this fact has also been one of bank indonesia ’ s concerns to always improve the policy transparency communication. with that background i would like to briefly share what indonesia has been through and the macroeconomic strategy to ensure

the sustainability of indonesia ’ s economic performance in a very challenging and still fragile global economy and financial market environment. recent economic development i will start my brief description on the development of the indonesian economy by emphasizing that what indonesia has been through and achieved, particularly during the most recent global turmoil, is mostly as a result of years of “ post 1998 crisis ” transformation process. indonesia is now transformed into one of the world largest democratic and structurally different with what it was a decade ago. this is as a result of more than ten years of consolidation and dynamic transition in almost all sectors. the extensive transformation measures that became a continuing agenda with full commitment, despite its challenging process, have provided a more resilience foundation into the indonesian economic development. of course, there are still many agendas to be executed to improve and to increase the efficiency of the whole business and economic activities. but, the progress so far, particularly the consistent prudent practice of macroeconomic management, has proven to contribute to shelter the domestic economy from further adverse impact of the most recent global crisis. among few countries in the region, indonesia was still experiencing a positive growth of 6. 0 % in 2008 and 4. 5 % in 2009. while, in the first half of 2010, supported by a better than expected global the economic recovery is expected to grow at 6 %, which is higher than previously estimated of 5. 7 %. in 2010, the indonesian economy is expected to grow at 6 % and slightly higher in 2011 and 2012. these were mainly sustained by high and inclusive growth of domestic demand, in particular consumption. yet, export performance and investment has also showed a slight increase and expected to sustain their upward trend. inflation has also moderated at 5. 05 % ( year - on - year ) in june 2010, held by adequate supply responses and rupiah exchange rate appreciation, despite that there was a hike in volatile price component. hence, the june inflation is slightly higher than previously estimated. however the recent increase of the volatile food price is expected to be temporary and inflation is expected to be maintained within target range of 5 % + / – 1 % in 2010 and 2011. the core inflation figure is also supportive to bank indonesia inflation assessment. to this respect, the latest monetary policy decision to keep bi rate at 6. 50 %, is considered as adequate to ensure the inflation expectation within the target range and supportive to maintain the growth momentum, as well as to encourage bank lending. meanwhile, the balance of payment