At a conference in Bali on March 11 jointly organized by Bank Indonesia, the International Monetary Fund (IMF), and the Investment Coordinating Board of the Republic of Indonesia (BKPM), close to 200 senior government officials, leading academics, investors and members of the media from Asia and other regions discussed recent developments in capital inflows and practices for effectively managing such inflows and channeling them to long-term investment, and shared their respective experiences.
In opening the conference, Bank Indonesia Governor, Darmin Nasution, urged participants to develop new concepts, methodology and policy combination in dealing with and managing capital inflows. He highlighted the importance of a policy mix that combines macroeconomic policy responses, macro-prudential measures, and structural reforms that promotes investment in (both hard and soft) infrastructure in order to manage capital inflows more effectively for the benefits of building resilience and sustained growth in emerging economies in Asia.
In his remarks, Anoop Singh, Director of Asia and Pacific Department of the IMF continued to see significant room for fiscal, monetary and exchange rate policies to respond to capital inflows and rising overheating pressures in Asia, and underscored the importance of harnessing the benefits of capital inflows to promote investment and growth, while ensuring financial stability. Finding the right balance requires cooperation and consultation across countries and between policy makers, he said.
Gita Wirjawan, Chairman of the Indonesia Investment Coordinating Board (BKPM) shared the Indonesian experience of transforming capital inflows into “smart capital” and channeling them into long-term investment that could increase the growth potential and facilitate global rebalancing.
With the global multi-speed recovery and Asia leading the way, participants gathered in Bali agreed that capital flows are beneficial to receiving economies. It is, however, important to analyze cross-country experience and update the policy toolkit to enhance the ability of economies to absorb inflows through the deployment of a combination of appropriate macroeconomic policies, structural reforms, and supportive capital flow management measures with greater international cooperation.
The one-day conference is part of the strengthened ongoing engagement between the IMF and Asian policymakers following the major IMF-sponsored conference in Daejeon, South Korea, in July 2010, at which the Fund committed to cementing a new and mutually beneficial relationship with the Asia region.