IMF chief: Indonesia needs prudent monetary policy

JAKARTA - Managing Director of the International Monetary Fund (IMF) Christine Lagarde said on Tuesday that Indonesia needs a prudent monetary policy and a flexible exchange rate to protect its economy from the risks of the debt crisis in Europe.

Lagarde told a joint press conference after meeting with Indonesia President Susilo Bambang Yudhoyono at the State Palace that the country needs to attract growing foreign direct investment in longer term, reaffirming the need for the country to boost infrastructure projects.

"The authorities recognize that policy initiatives in a number of areas would enhance the quality and equity aspects of growth. Prudent monetary policy and a flexible exchange rate remain important to safeguard against external risks," said Lagarde.

After regaining its investment grade status from Moody's Investor Service in January, the country is expecting investment to contribute more to achieve the 6.5 growth target this year.

Indonesia's central bank has worked intensively on the currency and bond market to help stabilize rupiah and vowed to intensify the efforts following the exits of foreign funds from the country recently.

"In my discussion with the authorities, we agreed that greater investment, both domestic and foreign, and specially infrastructure, is a key to increasing growth even further in Indonesia," she said.

In an effort to improve structure, the long-term bottleneck to investing in Indonesia, the country is trying to shift its reliance from dwindling oil-based fuel to abundant gas-based fuel, attempting to cut its energy subsidy so that it could allocate more funds to build roads, railways, bridges, airports and sea ports.

The central bank was confident that inflation would be in the range of its target of 3.5 percent to 5.5 percent this year. It has extended pause on interest rate cut since February and kept it at 5.75 percent as it strives to support rupiah and spur economic growth. Analysts have said that the bank may keep the rate unchanged by the end of the year.

Indonesia's previous commitment of $1 billion loan aid to tackle the European economic crisis was not mentioned during the press conference, but Indonesian President Yudhoyono said Indonesia would continue to help the IMF through the forums of ASEAN, G-20 and others global forums.