darmin nasution : building efficient equilibrium towards sustainable growth speech by dr darmin nasution, governor of bank indonesia, at the bankers ’ dinner, jakarta, 9 december 2011. * * * respectable members of parliament, prominent bankers, businessmen and dignitaries, distinguished guests, ladies and gentlemen, assalamu ’ alaikum wr. wb, good evening and may god bless us all, to open my speech here today held in such salubrious settings, i would like to invite you all to join me in expressing thanks and praise to god almighty who has blessed us again with the opportunity to congregate here for the bankers ’ dinner at the end of 2011. in distinction from the previous bankers ’ dinner ’ s tradition usually held in the opening of a new year, this 2011, we have decided to organize this annual event at the closing of the year. by doing so, it is sincerely hoped that we have ample time to reflect on the success and failure over the past year as well as to discuss our expectations, risks and challenges to draw commitments ahead of time. distinguished guests, ladies, and gentlemen, it has come to our common understanding that changes in the constellation of the global economy since the global financial crisis of 2008 and its aftermath had left a profound and widespread fright. against the backdrop of lingering effects from the global financial crisis, significant challenges in managing an increasingly complex macroeconomic stability has risen considerably. external shock and uncertainty seem becoming a constant dimension that incessantly shadows us along with the prevailing shifts and changes. in this current era of globalization, every formulation and implementation would be surrounded by some degree of uncertainty. however, it is believed that every open economy such as indonesia will be constantly challenged by different external shocks over time. the problem is we do not know when, how big and through which channel the shock will happen. nevertheless, we should be grateful. despite the uncertainties, our economy has shown stronger performance this year compared to last year. solid collaboration and close coordination, based on common understanding, have become fundamental elements in achieving and maintaining the successful management of our economy. therefore, prior to delivering the main substance of my annual address this evening, please allow me to express my sincere appreciation and thanks to the banking community, all elements of the central and local government, the parliament, business community, academics, observers, the media and all other parties that i am, unfortunately, unable to acknowledge individually, who have been so incredibly supportive of bank indonesia in fulfilling its duties

among stakeholders, which is supported actively by the banking community, business agents and the general public. in this opportunity, i would like to highlight several policy actions taken by bank indonesia in confronting the national economy dynamics during 2011. on the monetary side, bank indonesia ’ s policy in 2011 is basically a strengthening of previous year ’ s policy mix, but further calibrated to the dynamics and challenges of the economy during 2011. interest rate policy throughout 2011 is directed to be consistent with the predetermined inflation target of 5 % ±1 % and 4, 5 % ±1 % in 2011 and 2012, respectively. in february 2011 bank indonesia increased bi rate by 25 bps to 6. 75 % as a response to intensifying inflation expectation, which is attributable to high volatile food inflation. since september 2011, the monetary stance is turned to an easing phase, by decreasing the lower limit of interbank money market interest rate corridor. further in october and november 2011, bank indonesia lowered bi rate by 25 bps and 50 bps, respectively to arrive bis central bankers ’ speeches at the 6. 0 % level. the decision to lower bi rate is indeed quite delicate since it has to be taken in the middle of ongoing turmoil in the global financial market and against the market mainstream. however, we have strong belief supported by highly fundamental consideration. since mid 2011, we have been convinced that cpi inflation would move down, possibly even reaching below the 5±1 % target. on the other hand, we need to lay stronger basis for domestic demand in anticipation of global economic slowdown. it can be noted that this year bank indonesia is ahead of the curve by being the first central bank in asia to lower policy interest rate. we view that the national economy should also be ring - fenced from instability sources such as short term capital flows. in addition, the structure of capital flows needs to be amended by shifting it to longer instruments. therefore, on 13 may 2011, the sbi ’ s holding period is extended to 6 months from previously 1 month. this policy proves to be effective in halting capital inflows into sbi and shift foreign capital investment to government securities market. distinguished guests, ladies, and gentlemen, experience demonstrates that crisis management often bears extremely high economic and social cost and involves long recovery. against this background, bank indonesia also implemented crisis management protocol ( cmp ). however, the cmp needs to be equipped with proper guidance and legal basis which regulate crisis