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Indonesia wants Fed to consider impact of policies

Indonesia wants Fed to consider impact of policies

The 2018 Annual Meetings of the IMF and World Bank Group will get underway on Friday in Bali Nusa Dua

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By Jackson Lewis 11.10.2018

Indonesia has called on global financial chiefs gathering for the International Money Fund (IMF) summit in Bali this week to consider the impact of new policies on emerging markets, both in Asia and around the world.

The 2018 Annual Meetings of the IMF and World Bank Group will get underway on Friday in Bali Nusa Dua, and measures that aim to mitigate emerging geopolitical risks and stimulate growth are sure to be on the agenda. The IMF has been vocal in recent days about what it believes that certain countries should do, with Managing Director Christine Lagarde urging Japan to revamp “Abenomics”.

Indonesia Finance Minister Sri Mulyani Indrawati is hopeful that those attending the summit are aware of how policies affect developing economies. While Indonesia has the fundamentals in place to stabilize its currency and manage its current accounts and deficits effectively, it has still seen effects from the US Federal Reserve’s decision to hike interest rates.

The recent Fed rate rise sowed a certain degree of instability, which led to capital flows. In an interview on Tuesday, Indrawati called on the 189 members of the IMF to do better in terms of policy coordination so that emerging economies do not face any impact or potential downsides.

She added that the US in particular should be “very mindful” of how the spillover from policies that it enacts can be “very real” for a vast number of countries around the world. Talking to Bloomberg Television in Bali, Indrawati added: “I do hope Jerome Powell, Mnuchin, China, Japan, Europe will be fully aware that you are in a country that is doing all the right things, yet we have to be very vigilant with the global environment changing very fast."

Indonesia has felt the full force of uncertainty on several fronts this year, as the ongoing US-China trade conflict, a stronger US dollar and rising US interest rates cut into the health of its economy. Global emerging markets have had to deal with similar challenges as investors continue to dump riskier assets.

The Indonesian rupiah has tracked lower for most of the year slumping to levels not seen since the 1990s. Authorities have intervened in an attempt to address the steep decline with curbs on imports, increases in interest rates and delays in project spending, but these moves have had little impact as the currency broke through the 15,000 level compared to the US dollar earlier this month.

While the capricious nature of the Trump administration makes it difficult to predict which policies will be pursued in the short to medium term, the US Federal Reserve is a little easier to read, and Indonesia expects it to be more thoughtful and “design policy with a path that creates a friendlier environment for many emerging countries to adjust to.”

The Fed recognizes its responsibility, as Jerome Powell said in September that the impact of its policies on developing nations “really matters to us” and that it is doing its best to be transparent about its plans.

The summit comes just days after the IMF cut its global growth forecast for the year and outlined growing risks to the long-term outlook. On the theme of sustainable recovery, Indrawati said: “We do hope with the Bali environment that everybody, policymakers from US, China, and Europe, Japan and other emerging countries, are going to have much more ability to agree and restore confidence in the market and the global economy and have the commitment to cooperate.”

Indrawati added that Indonesia’s own policy direction will stem from the Fed’s interest rate moves in 2019 and their effect on developing nations.

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