more appreciated and cherished since they were achieved in the midst of global uncertainty and calamity. 21. in this opportunity, allow me to address bank indonesia ’ s policy responses in 2010 in preserving macroeconomic and financial system stability. in accordance with tonight ’ s theme, i believe that strengthened stability will support the transformation process of our economy in the aftermath of the global financial crisis from a recovery stage to a more sustainable growth. 22. the way bank indonesia formulates policy responses is indeed a meticulous process involving deep internal discussion. this was undeniable since the threats and challenges in 2010 was so diverse and unpredictable creating complexity in the policy making process. 23. in general, there are three challenges in 2010 which will persist in the future. first, the challenge of global economic imbalance. two years after the crisis, the global economy underwent two speeds of recovery in which the recovery in emerging markets is more rapid than that in advanced economies. to ensure durability of recovery, policy makers in developed countries rely on accommodative policies. on the other hand, policy makers in emerging markets have to deal with economic overheating. we may say that almost all emerging markets have undergone policy normalization in 2010, some countries even have shifted to tightening mode. 24. second, challenges associated with global capital mobility and currency war. the differences of economic cycles and policy stances between developed countries and emerging markets unfortunately have led to unfavorable consequences for emerging market. this is evident in the context of tidal wave of capital inflows into emerging markets including indonesia. the surge of capital inflows bring about complexities of macroeconomic policy management to emerging market, including indonesia, since it has bearing on currency appreciation pressure, asset bubble risks, and financial fragility following capital reversal. 25. policy responses by way of foreign exchange intervention and managing capital flows in several emerging market have generated different appreciation pressures among countries. in the mean time, since keeping large stock of international reserves is deemed too costly, emerging markets tend to put their reserves in other emerging markets. this situation indeed entails a significant negative externality in the emerging markets region. hence, a policy coordination in the multilateral level is necessary to avoid negative externality of individual country policy response. 26. third, challenges related to domestic demand and inflationary pressure. global financial crisis 2008 / 2009 has deteriorated inter and intra - regional trade which prompted many countries to focus on promoting domestic demand. however, in

. we are confident that growth will pick up to the 5. 2 – 5. 6 percent range in 2016. domestic demand would be the main driver of growth, while exports are expected to remain weak reflecting low commodity prices. 21. growth will be led by capital spending of the government in the first half of the year, and by private investment later in the year conditioned on positive reform momentum. private investment is fairly pro - cyclical and should therefore improve as public sector infrastructure spending accelerates and the overall growth outlook improves, in my view. 22. the current account deficit ( cad ) is projected to increase to around – 2, 5 percent of gdp in 2016, on the back of a pickup in fixed investment and a further deterioration in commodity export prices, while the balance of payments ( bop ) is projected to return to a surplus. 23. inflation in 2016 is expected to stay within the 4±1 percent target, backed by well managed domestic capacity utilization, anchored inflation expectations, and declining commodity prices. ladies and gentlemen 24. indonesia, being a small open economy, cannot escape from greater volatility in the global economy and financial markets. therefore, positive outlooks, such as the one i just described, may change quickly as subject to critical risks tilted to the downside. 25. while global financial markets in recent weeks appear to be coping better, risks and vulnerabilities could elevate at some time in the future. monetary policy developments in advanced economies will continue to shape em capital flows in important ways, particularly volatile portfolio flows. 26. the fact that the long - awaited beginning of the fed ’ s interest rate hiking cycle did not spark excessive market volatility was encouraging, given the long road of policy normalization that lies ahead for the fed. nonetheless, we have to be mindful with the bis central bankers ’ speeches unpredicted shifts in investor expectations of fed tightening speed which again would likely to spark periods of volatility in coming quarters. 27. hence, in an unforgiving global environment we need to make ourselves as resilient as possible to ride the waves, being prepared and well equipped with buffers and policies to cope with adverse shocks, and require a high degree of vigilance and ingenuity. 28. on domestic front, we should also acknowledges that there remain key challenges, including ( i ) low productivity in the agriculture sector, ( ii ) land acquisition problems for infrastructure projects, and ( iii ) bottlenecks