London (Antara Bali) - Deputy Governor of Bank Indonesia (BI) Hendar said Indonesia is facing heavy challenges, but a number of steps have been taken to deal with the impact.
Hendar, here to install new chief representative of the central bank for Europe and Africa, said Bank Indonesia continues to adopt tight monetary policy to maintain market confidence and to prevent current account deficit from widening.
He said the central bank has relaxed regulations to encourage credit expansion by banks, but the steps have not fully been up to expectation, adding the pressure remains heavy on rupiah despite protective measures by Bank Indonesia.
Hendar stressed the importance of maintaining confidence by spreading positive perception that Indonesian economy is on right track.
"We have good experience in carrying out economic reform," he said.
The economic slowdown is caused mainly by decline in export performance with the falling prices of commodities such as palm oil coal and oil, he said.
A number of provinces like East Kalimantan, Aceh and Riau recorded a contraction in two successive quarters this year.
Low government spending is another main cause of the economic slowdown and the impact is bad on the financial sector.
In the banking sector, economic slowdown is followed by low credit growth and tendency of an increase in non performing loan especially in the contraction sector, Hendar said.
Uncertainty in the global financial market resulted in share price fall with index shrinking from 5,500 points in April to 4,100 points early this week, he said.
The impact of economic slowdown is not significant on the people's economy in general but it is bad in coal, palm oil and rubber producing regions.
Meanwhile rupiah has been under pressure since early May with uncertainty over the Fed's plan to raise its interest rate expected in September.
The pressure was heavier when the market saw a number of economic fundamental factors that would encourage the Fed to raise its interest rate, although until now the decision is still suspended.
The uncertainty is feared to continue for a longer time after China devalued its currency earlier this month.
The impact of the Chinese devaluation could not only weaken rupiah but result in an increase in imports from that country. (WDY)
