The Republic of Indonesia
The Republic of Indonesia
Recent Economic Developments
Recent Economic Developments
Macroeconomic Performance
Banking Sector Performance
Banking Sector Performance
Government Policy for Investment Growth
Macroeconomic Performance
Growth and components
Monetary and exchange rates
Balance of Payments
4
4.38
4.88 4.87
5.68
5.48
6.30
2002 2003 2004 2005 2006 2007
Highlights
Macroeconomic Growth
* Preliminary ** Source: BPS, BI
% change in GDP
Economic Growth
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
Hous ehold Governm ent Inves tm ent E x port Im port
Portion of GDP (%)
2005A 2006 2007F
Indonesian economy grew by 5.5% during 2006. The major sources of economic growth are exports and rising domestic demand, particularly from resumption of investment growth.
For the future, the outlook is for continued improvement in economic growth. Economic growth in 2007 is projected at 6.3%, up from the growth achieved in 2005 and 2006.
Growth is predicted to gain added
momentum in the second half of 2007 as the private sector boosts investment. During the 1st half of 2007, the primary engine of economic activity will be private consumption.
5
Economic Growth
... Demand & Supply Side
Demand side:
Indonesia s economic performance in Q4/2006 shows an improving trend
In the first half of 2007, private
consumption will be the primary engine of economic activity
Stronger economic activity is forecast for the second half of 2007, buoyed by significant investment growth
Supply side:
Economic growth on the production side is forecast higher in 2007 than in 2006, in line with expectations of stronger domestic demand
Robust growth is expected in the manufacturing, trade, hotels and restaurants sectors
Highlights
* Projection
GDP Growth - Supply Side 2007 I II III IV I II III IV Total *
1 Agriculture -0.4 2.2 3.6 5.6 6.4 1.5 2.2 1.8 3.2
2 Mining and Quarrying 5.1 1.1 2.8 3.5 2.7 4.0 1.6 0.7 2.6 3 Manufacturing Industry 6.3 4.8 4.4 2.9 2.9 3.7 5.9 5.9 5.6 4 Electricity, Gas and Water Supply 6.4 6.9 6.6 5.4 5.1 4.5 5.8 8.1 6.4
5 Construction 7.5 8.3 6.9 7.0 7.4 8.7 9.3 10.4 7.9
6 Trade, Hotel & Restaurant 9.7 9.7 8.4 5.8 4.4 5.5 7.5 7.0 7.1 7 Transport and Communication 14.3 14.1 13.0 10.8 11.5 13.3 13.6 15.9 13.5 8 Financial, Ownership and Business 6.3 8.2 7.7 5.1 5.7 5.3 4.7 6.8 5.8
9 Services 4.7 4.5 5.3 5.7 5.8 6.1 6.8 6.0 6.6
Gross Domestic Product 6.1 5.9 5.8 5.0 5.0 5.0 5.9 6.1 6.0
2005 2006
GDP Growth - Demand Side 2007 I II III IV I II III IV Total*
1 Consumption 2.0 2.6 5.5 6.7 3.8 5.6 2.8 3.5 4.8 - 5.7
2 Private 3.4 3.8 4.4 4.2 2.9 3.0 3.0 3.8 4.2 - 4.7
3 Government (9.6) (6.7) 14.7 24.9 11.5 28.8 1.7 2.2 9.4 - 13.3
4 Investment/Gross Fixed Capital Formation 14.9 16.7 10.3 2.5 1.1 1.1 1.3 8.2 11.6 - 14.6
5 Domestic Demand 5.9 6.5 7.0 1.9 1.9 3.2 1.9 6.0
6 Exports 22.0 17.4 12.0 15.2 11.6 11.3 8.2 6.1 8.0 - 8.6
7 Imports 22.0 23.5 17.0 7.2 2.8 7.5 10.1 9.7 10.2 - 11.4
Gross Domestic Product 6.1 5.9 5.8 5.0 5.0 5.0 5.9 6.1 5.7 - 6.3
6
Prudent Monetary Measures
Source: Bloomberg & BI
Within the inflation targeting framework, BI continues to maintain inflation at a moderate medium-term level, against a background of accelerating economic growth
CPI inflation (yoy):
Q4/2006: 6.60% Q1/2007: 6.52% Core inflation (yoy):
Q4/2006: 6.03% Q1/2007: 5.87% Inflation easing toward targeted level Key factors : stabilized exchange rate, improved inflation expectations &
minimum impact from administered prices & volatile foods
BI Rate gradually reduced to 9.00%. Key considerations: continued
macroeconomic stability, greater
confidence for achieving 2006 and 2007 inflation targets and renewed market confidence
9 . 4 0 12 . 6 0
5 . 10 6 . 4 0 14 . 5 3
17 . 6 2
13 . 0 2
17 . 11
6 . 5 2 6 . 6 0 15 . 5 3
15 . 7 4
10 . 0 0
14 . 5 5
9 . 0 0 9 . 7 5
11. 2 5 12 . 5 0 12 . 7 3 12 . 2 5 8 . 3 1
7 . 4 3
0.00 5.00 10.00 15.00 20.00
2000 2001 2002 2003 2004 2005 1Q06 2Q06 3Q06 4Q06 1Q07
Inflation y-o-y 1-month SBI
3 5 7 9 11 13 15
2003 2004 Jun-0 5 Jul-0 5 Aug-0 5 Sep-0 5 Oct-0 5 Nov-0 5 Dec-0 5 Jan-0 6 Feb-0 6 Mar-0 6 Apr-0 6 May-0 6 Jun-0 6 Jul-0 6 Aug-0 6 Sep-0 6 Oct-0 6 Nov-0 6 Dec-0 6 Jan 0
7 Feb'0
7 Mar'0
7
7
Exchange Rate
Modest Appreciation - Low Volatility
In Q1/2007, the Rupiah maintained an appreciating trend with declining volatility compared to
previous quarter. The level of the Rupiah was bolstered by improved performance in the Balance of Payments, enhanced risk management and continued attractiveness of yields on Rupiah
instruments
Calculated as an average, the Rupiah strengthened from Rp 9,132/USD in Q4/2006 to Rp 9,102/USD in Q1/2007, with volatility as low as 0,57% in Q1/2007
Average Exchange Rate
Highlights
8,000 8,500 9,000 9,500 10,000 10,500 11,000 J u l-0 5 A u g -0 5 S e p -0 5 O c t-0 5 N o v -0 5 D e c -0 5 J a n -0 6 F e b -0 6 M a r-0 6 A p r-0 6 M a y -0 6 J u n -0 6 J u l-0 6 A u g -0 6 S e p -0 6 O c t-0 6 N o v -0 6 D e c -0 6 J a n -0 7 F e b -0 7 M a r-0 7 -1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Daily Exchange Rate Volatility
Average Volatility
Rp/USD Volatility, %
8500 9000 9500 10000 10500 11000 1-Jun-05
22-Jun-05 13-Jul-05 3-Aug-05 24-Aug-05 14-Sep-05 5-Oct-05 26-Oct-05 16-Nov-05 7-Dec-05 28-Dec-05 18-Jan-06 8-Feb-06 1-Mar-06 22-Mar-06 12-Apr-06 3-May-06 24-May-06 14-Jun-06
5-Jul-06
26-Jul-06
16-Aug-06 6-Sep-06 27-Sep-06 18-Oct-06 8-Nov-06 29-Nov-06 20-Dec-06 11-Jan-07 1-Feb-07 22-Feb-07 15-Mar-07
0 2 4 6 8 10 12 14
8
Balance of Payments is Improving
The current account recorded a surplus of US$2.1 billion in Q4, contributed to a record high surplus of US$9.6 billion (2.6% of GDP) for the whole 2006.
The capital and financial account recorded a surplus of US$2.2 billion in Q4 and US$2.5 billion for 2006. Global liquidity and stable domestic macroeconomic environment contributed to the larger surplus in capital and financial account.
Strong BOP performance contributed to a steady increase in official reserves. By the end of March 2007, international reserves reached US$ 47.2 billion, equivalent with 4.7 months of imports and official debt repayments.
Record high current account surplus Official Reserves Increased Significantly
-10,000 -5,000 0 5,000 10,000 15,000
2001 2002 2003 2004 2005 2006
current account overall balance capital & financial account
43 35
36 36
32 28
47 7.1
4.7 5.7
4.3 4.5
6.6
6
0 10 20 30 40 50
2001 2002 2003 2004 2005 2006 Q107*
0 1 2 3 4 5 6 7 8
FX reserves . Months of import and official debt repayment (LHS)
9
Buoyant Exports Supported By Strong
External Demand
Strong export performance driven by high world commodity prices and continued robust growth in the world s economy and international trade
Non Oil-Gas Exports by Group of Commodities
(millions of USD) Highlights
Overall, non-oil/ gas exports grew by 20.7% in 2006, slightly higher than previous estimate (19%).
Non-oil/ gas exports in Q1 2007 grew by 22.2% (y-o-y)
Non-oil/ gas exports for Q1 2007 is
higher than initial forecast,
supported by continued growth of world commodity prices as reflected in rising commodity prices.
0 1000 2000 3000 4000 5000 6000 7000 8000
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3
2002 2003 2004 2005 2006 2007 0 1000 2000 3000 4000 5000 6000
10
Imports Start to Expand but at Slower
Rate than Exports
Low import growth linked mainly to weakening domestic demand
Non Oil-Gas Imports by Group of Commodities
(millions of USD) Highlights
Imports picked up in Q4-2006, especially for raw materials and capital goods. However, the growth of non-oil/ gas imports for the whole 2006 still stood at a low 7.1%.
During Q1 2007, non oil-gas imports (C&F) grew at 11.6%
Import growth in Q1 2007 is higher than initial forecast in line with growth in domestic production and consumption
0 1000 2000 3000 4000 5000 6000 7000
1 3 5 7 9
1
1 1 3 5 7 9
1
1 1 3 5 7 9
1
1 1 3 5 7 9
1
1 1 3 5 7 9
1
1 1 3
2002 2003 2004 2005 2006 2007
0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000
Total (LA) "Consumption Goods"
11
Fiscal Policy 2007
-2.4
-1.3
-1.7
-1.3
-0.5
-1 -1.1
-3 -2.5 -2 -1.5 -1 -0.5 0
2001 2002 2003 2004 2005 2006* 2007*
Key highlights Continued fiscal discipline
In order to stimulate growth the Government decided to combine fiscal policy between consolidation and stimulate.
Government support on infrastructure financing and establishment RMU for anticipated risk
Improve efficiency & effectiveness of government expenditure to stimulate growth (infrastructure, social expenditure through education and health, subsidies)
Possibility of 2007 Budget Deficit widening to anticipate some additional urgent spending (i.e. natural disaster, government target on agriculture and energy alternative program)
Preparations under way for medium-term Budget and
treasury reforms, including performance and
multi-year budget, treasury single account, accrual basis
Consolidation of fiscal decentralization
Improved fiscal balance
Regional borrowing and municipal bonds, subj ect t o Minister of Finance approval
Regional f inancial inf ormat ion syst em t o support decent ralizat ion based on t ransparency and accountability
1) Based on 2007 budget
Consolidation
Stimulate & Consolidate
Budget Deficit, % of GDP
2001 2002 2003 2004 2005 2006 2007**
2.8 3.4 1.5 1.7 1.7 1.4 1.3
12
Source: Ministry of Finance
Fiscal consolidation and sustainability Outperformed deficit at 1.0% GDP, below target of 1.3%
Total debt/GDP ratio at 39% less than estimated 43.1%
Capital spending exceeded initial budget Budget financing to rely more on domestic sources primarily government debt
Increase expenditures for the regions
2006 State Budget
IDR (trillion) Realization
% of GDP
Total revenues & grants Rp. 637.8 19.1
Tax revenues 409 12.3
Non-tax revenues 226.9 6.8
Grant 1.9 0.1
Expenditures 670.6 20.1
Central Government 444.2 13.3
Transfer to region 226.4 6.8
Capital Spending 58.9 1.8
Overall balance (deficit) (32.8) (1.0)
Financing IDR (trillion)
Realization
% of GDP
Government bank account Rp. 15.3 0.5
Privatization proceeds, net
and asset disposal
3.1 0.1
Government bonds, net 35.9 1.2
Foreign Financing, net (19.3) (0.6)
Gross drawing 33.4 1.0
Amortizations (52.7) (1.7)
Total financing 32.9 1.1
Assumptions Realizations
GDP growth (%) 5.80 5.48
Inflation (%) 8.0 6.6
Exchange rate (USD/IDR) 9,300 9,164
SBI 3 months (%) 12.0 11.7
Crude oil price (USD/bbl) 64.0 63.8
13
Source: Ministry of Finance
Aggressive target of GDP growth of 6.3%
Based on conservative oil price assumption
Target deficit at 1.1% of GDP and 37% debt/GDP
Budget financing to rely more on domestic sources, primarily government debt
Increase expenditures for the regions
Provide risk sharing scheme for PPP projects
Realization 2007 State Budget up to Q1
Budget Government bank
account
12.96 0.131 1 Privatization & Asset
disposal
3.5 0.192 4 Government bonds, net 40.6 27.2 66.9 Foreign Financing -14.6 -8.7 0
Gross drawing 40.3 0.219 0.54 Amortizations -54.8 -9.5 17.3 Total financing 40.5 18.3 45.1 Financing
(In Trillion Rupiah)
Realizations* % of Budget
(In Trillion Rupiah) Budget Realizations* % of
Budget
Total revenues & grants 723.1 103.7 14.6
Tax revenues 509.5 91.4 18
Non-tax revenues 210.9 12.3 5.8
Grant 2.7 0.21 0.8
Expenditures 763.6 104.8 13.7
Central Government 504.8 49.7 9.8
Capital Spending 73.1 2.6 3.6
Transfer to region 258.8 55.1 21.3
Overall balance (deficit) -40.5 -1.07 2.64
1.000 Crude oil production (mm bbl/day)
63.0 Crude oil price (USD/bbl)
8.5 SBI 3 months (%)
9,300 Exchange rate (USD/IDR)
6.5 Inflation (%)
6.3 GDP growth (%)
Assumptions
* Very very preliminary number
14
Government support on PPP
infrastructure projects
Electrical Power
Infrastructures Crash Program 10.000 MW - PSO (Public Service Obligation) Policy
Trans Java Toll Highway Project
JORR II
Jakarta Monorail
7 Framework
Promoting private sector participation in the provision of public goods through infrastructure development
Government will guarantee the economic of infrastructure project based on fairness of IRR through risk sharing scheme
10 model Project PPP Toll Roads/Transportation
Power (Electricity)
Covering sectors:
transportation, toll road, water supply, power and telecommunication
15
10 Model Project PPP
Source: MoF
Sector Project Specification Investment Cost Status (USD million)
Transportation Margagiri-Ketapang Ferry Terminal
1.2 mil pax
/year 95 FS and tender document preparation
Teluk Lamong Container
Port (Ext Tanjung Perak) 350 m berth 179 FS and tender document preparation
Toll Road Solo-Kertosono
177.12 km 870
Pre-qualification, 3 bidders are preparing the proposal
Medan Kualanamu 16 km 167 Preparation for prequalification
Water Supply Tangerang Water Supply 900 l/s 33.7 Pre-qualification, tender evaluaion
Bandung Water Supply
450 l/s 30.7
Review FS, tender doc & concession agreement dvt
Dumai Water Supply
500 l/s 44
Review FS, tender doc & concession agreement devt
Power Pasuruan
1 X 500 MW 275
Preparation of Pre FS, tender will be started end of 2007 or early 2008 Central Java coal fired
2 X 600 MW 1200
Preparation of Pre FS, tender will be started end of 2007 or early 2008
Telecommunication Palapa Ring 30,000 km,
fiber optic network
16
2007 Debt Management Main Agenda
Conducting measurable debt switching (government securities) to manage refinancing risk and maintain liquidity;
Maintaining benchmark issuance to facilitate primary dealership system; Increasing market absorption, through product diversification (retail and Islamic) and market maker;
Enhancing market infrastructure
Debt Capital Market Operation
Debt Capital Market Operation
Loan Management
Loan Management
1
1
2
Converting currency pool loan (CPL) and single currency pool debt (SCPD) into LIBOR based/fixed rate loan;
Focusing on fixed spread loan/FSL (for the World Bank laon) with an option conversion into IDR loan;
Identifying expensive loan (commercial credit) and exchange it with lower cost debt;
Conducting debt swap;
17
Total Debt Outstanding 2001-2006
2002 2003 2004 2005 2006 P
a. Loan 63,7 68,9 68,0 63,1 62,0
Concessional Loans:
Multilateral 20,3 19,8 19,3 18,8 18,8
Bilateral 26,1 29,9 30,3 32,3 31,8
Semi-concessional Loans:
Export Credit Agency 16,6 18,4 18,0 11,6 11,2
Leasing 0,4 0,2 0,2 0,1 0,1
Commercial 0,3 0,3 0,2 0,2 0,1
b Government Securities 73,3 76,6 71,3 70,5 82,3
USD Denominated - - 1,0 3,5 5,5
Rupiah Denominated 73,3 76,6 70,3 67,0 76,8
Total Government Debt 137,0 145,6 139,3 133,6 144,3
18
Total Debt Maturity Profile as of 31
Dec 2006
0 10 20 30 40 50 60 70 80 90
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Rupiah Foreign Currency
19
Debt Composition
19%
53% 53% 52% 54% 53% 50% 50% 53% 81%
47% 47% 48% 46% 47% 50% 50% 47%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1998 2000 2002 2004 2006 P Domestic Debt External Debt
IDR 53.5%
GBP 1.1%
Others 17.7%
JPY 17.8%
USD 5.7%
EUR 4.1%
By Currency Type
VR-Tradable
13.89%
FR-Tradable
22.21% VR-Non Tradable 13.46% FR-Non
Tradable 50.44%
By Interest Type & Tradability
Debt Structure as of 31 Dec 2006
20
GOVERNMENT DEBT SECURITIES Jan '06 Dec'06 Jan'07 Feb '07 Mar '07 16 Apr '07
Government Domestic Bonds
1. Fixed Rate *) +) IDR 194,992 IDR 238,565 IDR 243,515 IDR 247,948 IDR 263,381 IDR 260,245 2. Variable Rate *) IDR 210,650 IDR 180,187 IDR 180,037 IDR 175,443 IDR 175,443 IDR 174,873 Sub Total IDR 405,642 IDR 418,751 IDR 423,551 IDR 423,391 IDR 438,824 IDR 435,118
3. Promissory Notes to Bank Indonesia **) ***)IDR 220,899 IDR 274,367 IDR 274,367 IDR 273,857 IDR 273,857 IDR 273,857 Sub Total IDR 220,899 IDR 274,367 IDR 274,367 IDR 273,857 IDR 273,857 IDR 273,857
Total Government Domestic Bonds IDR 626,541 IDR 693,118 IDR 697,918 IDR 697,248 IDR 712,681 IDR 708,975
Total Government International Bonds *) USD 3,500 USD 5,500 USD 5,500 USD 7,000 USD 7,000 USD 7,000
TOTAL GOV'T DEBT SECURITIES IDR 661,663 IDR 742,728 IDR 748,160 IDR 761,368 IDR 776,507 IDR 772,661
Notes:
- Nominal in billion rupiah (domestic bonds) and million USD (international bonds) - *) Tradable
- **) Non-Tradable
- ***) Indexation Value IDR 277,950 - - - -
-- +) Including Retail Bond
- Exchange Rate Assumption (IDR/USD1) IDR 10,035 IDR 9,020 IDR 9,135 IDR 9,160 IDR 9,118 IDR 9,098
21
In 2007, t he Government plans to f inance t he Budget def icit mainly wit h issuing Government securit ies f or a net amount of IDR 40.6 t rillion since external loan financing remains negative equivalent to - IDR 14.6 trillion
To meet such t arget , t he Government plans t o conduct regular mont hly primary issues on t he domest ic market . Ent ering int ernat ional market will be considered wit h very measurable objectives
To creat e market absorpt ion and liquidity, Government priorit ises the market inf rast ruct ure development by est ablishing primary dealers syst em, hedging market , diversif ying product , and enhancing market regulation
2007 Debt Financing Program
Total Revenue (trillion) 723.057 20.5%
Expenditure 763.570 21.6%
of which interest payment 85.086 2.4%
Domestic 58.421 1.7%
Foreign 26.665 0.8%
Primary Balance 44.573 1.3%
Overall Balance (40.513) -1.1%
Financing 40.513 1.1%
Non-Debt 14.462 0.4%
Debt 26.051 0.7%
Gov't Securities (net) 40.606 1.1%
Official Borrowing (14.555) -0.4%
Disbursement 40.274 1.1%
Repayment (54.830) -1.6%
Assumptions:
GDP (trillion) 3,531.1
Growth (%) 6.3
Inflation (%) 6.5
3-mo SBI (% avg) 8.5
Rp/USD (avg) 9,300.0
Oil Price (USD/barrel) 63.0
Oil Lifting (MBCD) 1,000.0
Note:
Non-Debt include: Privatization, Asset Sale and Gov't Capital Participation
22
Government Bonds
Recent Developments
Domestic Issuance (Jan Mar
2007)
Domestic Issuance (Jan Mar
2007)
3 (three) auctions of government bonds 2nd government retail bond ( ORI )
Rp 24.3 trillion amount issued in domestic market. Two new series with tenor ranging from 15-20 years
International Issuance (Feb
2007)
International Issuance (Feb
2007)
INDO-37: USD 1.5 billion global bond offering, a 30-yr issue due Feb 2037, coupon at 6.625%. Tot al book order of USD 5.25 billion.
Debt Switching
Debt Switching
Successful debt switching of Rp 11.2 trillion, comprising of:
Rp 0.03 trillion maturing in 2007;
Rp 0.41 trillion maturing in 2008;
Rp1.78 trillion matured in 2009;
Rp2.19 trillion matured in 2010;
Rp4.76 trillion matured in 2011; and
23
Yield Spread of Indonesian USD Bonds
over US-Treasury
April 2006
April 16, 2007
Source: Bloomberg
100 150 200 250 300
Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07
100 150 200 250 300
Spread (bps) INDO-14 over UST-14 Spread (bps) INDO-15 over UST-15 Spread (bps) INDO-16 over UST-15 Spread (bps) INDO-17 over UST-16 Spread (bps) INDO-35 over UST-36 Spread (bps) INDO-37 over UST-36
The Republic of Indonesia has priced a $1.5 billion 30-year deal with all-time tight spreads and all-time low yields. Yet another issuer prints a curve-busting deal at record-low pricing and record-high size (Asia Finance, Feb 10,2007)
24
IDR Yield Curve
6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 9.50% 10.00% 10.50% 11.00%
9 Apr '07 6.88 7.78 8.21 8.75 9.00 9.25 9.40 9.46 9.69 9.81 10.35 10.44 30 Mar '07 7.11 7.72 8.27 8.82 9.10 9.36 9.49 9.52 9.78 9.88 10.43 10.46 28 Feb '07 7.55 7.90 8.50 9.16 9.42 9.74 9.84 9.93 10.11 10.16 10.60 10.62 31 Jan '07 7.19 7.88 8.49 8.92 9.38 9.56 9.67 9.75 9.87 9.96 10.28 10.43 2 Jan '07 7.68 8.58 9.30 9.22 9.42 9.53 9.66 9.70 9.75 9.94 10.06 10.33 6 M 1 Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 Y 11 Y 12 Y 13 Y 14 Y 15 Y 16 y 17 y 18 y 19 y 20 Y
7,589
-650
3,763 4,477
-2,000 0 2,000 4,000 6,000 8,000 10,000
Total Jan Feb Mar
m
ili
a
r
R
p
Net Buying SUN Non-Res
25
0 50 100 150 200 250 300
Mar '06 May '06 Jul '06 Sep '06 Nov '06 Jan '07 Mar '07 Philippines Turkey Ukraine Venezuela Indonesia
120 140 160 180 200 220 240 260 280
1/1/07 1/15/07 1/29/07 2/12/07 2/26/07 3/12/07 3/26/07 4/9/07
PHILIPPINES COLOMBIA VENEZUELA BRAZIL TURKEY INDO 35 INDO 37
UST 10Y
UST 30Y
Yield Spread Emerging Countries Bonds
Macroeconomic Stability
Banking Sector Performance
Government Policy for Investment Growth
Banking indicators
27
Banking Indicators
Banks Maintaining Reasonable Performance
20.9 20.5 19.5 19.4 19.4 22.4 19.9 3.4 6.8 7 8.3 5.8 8.2 8.1 12.1 3.6 4.8 1.7 3.0 2.1 3.6 17.5 18 18.5 19 19.5 20 20.5 21 21.5 22 22.5 23 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 'F e b '0 7 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Average CAR Gross NPL Net NPL
Source: Bank Indonesia
% %
NPL ratios declined in 2006 and continue to decline in 2007
Banks are well capitalized with CAR above 20%, exceeding the 8% required level
Commendable performance on commercial bank earning assets
Main Banking Indicators
Commercial Bank Earning Assets
Loan BI Bill Securities Interbank 0 200 400 600 800 1000 1200 1400 1600 1800
2000 2001 2002 2003 2004 2005 2006 Jan-07 Feb-07
28
Banking Policy in 2007
Direction of banking
policy in 2007
To be more active in functioning as a catalyst in the process of increasing bank intermediation function towards the real sector
To reorganise the national banking through the revitalisation of existing banks and their role, especially state-owned banks
To facilitate the merger process between banks that are deemed in need of assistance
To facilitate a smooth banking intermediary function, which has become the main problem faced by Indonesia s banking industry recently
To provide guidance to foreign banks to contribute more optimally to the development of the Indonesian economy
To more proactively develop the financial market as well as financial instruments
To accelerate the expansion of Indonesian Sharia banking
29
Recent Banking Policy
Allowing debtors who had gone NPL for reasons beyond their control to get new credit and where a project is shown to be feasible
Uniform Classification
System
Evaluation of
The Earning
Asset
Quality (EAQ)
Earning assets quality to be rated solely on the basis of promptness in repayment
of principal and/ or interest for the loans and other provision of funds if the lending banks meet the criteria required by the Central Bank
Relying on bank s risk management capacity to judge creditworthiness of SMEs
The amendment of the regulation is designed to expand the role of the banking
Macroeconomic Stability
Banking Sector Performance
Government Policy for Investment
Growth
Recent Significant Achievements :
Investment Policy
Infrastructure Policy
Financial Sector
31
Recent Significant Achievements :
Investment Policy
1 New Investment Law
Equal treatment to both domestic & foreign investors Guarantee against nationalization & dispute settlements Simplification of investment procedure, adoption of one stop service
Investment facility : tax, rights of land use, immigration
2
Investment
Taxes
New tax incentives for investment in certain sectors & regions i.e. loss carry forward, accelerated depreciation, investment tax credits
Elimination of VAT on certain primary agricultural commodities to improve competitiveness
Establishment of Government Revenue Module to improve efficiency & transparency in government revenue system
3 Customs & excises
Electronic Data Interchange System to reduce customs clearance
Zero percent import duty for raw materials used
4
Harmonization of central & regional government regulations
32
Recent Significant Achievements :
Infrastructure Policy
6
7
Involvement of State Banks to finance infrastructure projects
Establishment of Risk Management Unit at Ministry of Finance & Public Service Company for Land Acquisition
Infrastructure
New Law on Railway
Transportation Enable private to take part in railway transportation
New Energy Policy
Provide incentive for development of energy alternative
Blue print on national energy management
8
9
New Law on Spatial Planning
Integrated spatial planning between central and regional government
Comprehensive explanation on category of reservation area and cultivation area
5
One important theme in infrastructure policy is the phasing out of the monopoly position of the SOEs in infrastructure services. Wider opportunities will be open for
33
Recent Significant achievements :
Financial Sector Policy & Poverty
Alleviation
15 The issuance of Program to provide block grants to every village in Indonesia by 2009
16 Conditional cash transfer program linked to education, health & nutrition to substitute
Unconditional cash transfer program
Poverty Alleviation
10 A decree to allow state banks to write off non performing loans
11
12 The establishment of bond transaction reporting center to provide an integrated source of information
Financial
Sector
Issuance of a pension road map, The implementation of KYC principle in the non Bank financial institution
The establishment of Mediation Agency for Indonesia Insurance 13
Incentive for Bank mergers and consolidation 14
The construction of 1000 tower of low cost apartment for low income people over 10 cities in Indonesia
17
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Recent Significant achievements :
SME Policy
20
21
SME Policy
22
Minister of Industry Regulation concerning development of the SME Business Advisor
19
Draft of Ministry of Finance Regulation concerning Investment Credit for SME Business
Simplification procedure for SME business permit through the issuance of Minister of Domestic Affairs Regulation
Easing banking rules on SME lending
Main Objectives of SME Policy is to upgrade SME productivity, to encourage
35
Special Economic Zone
Availability of well developed infrastructure
Availability of skilled
workers
Availability of
Superior sector
Special Economic
Zone
Attract investment Create employment
Generate export revenue
Improve export competitiveness
Generate local resources, service and capital
Facilitate technology transfer
An area which will have a certain regulation that will provide competitive business environment
