REPUBLIC OF INDONESIA
Recent Economic Developments
Published by Investors Relations Unit –Republic of Indonesia Address Bank Indonesia
International Directorate Investor Relations Unit
Sjafruddin Prawiranegara Building, 5th floor
Jalan M.H. Thamrin 2 Jakarta, 10110 Indonesia Tel +6221 381 8316
+6221 381 8298 Facsimile +6221 350 1950 E-mail elsya_chani@bi.go.id
dyah_mw@bi.go.id
Table of Contents
1. Macroeconomic Highlights
2. Bank Indonesia Monetary Policy
3. Bank Indonesia Banking Policy
4. Balance of Payments Performance Q3 2009
5. State Budget
Macroeconomic Highlights
Indonesia was named the region most active business reformer in East Asia and the Pacific according to Doing
Business Index 2010 surveyed by the International Finance Corporation (IFC). Indonesia’s rank in the index moved up from 129 to 122.
Indonesia’s rank in The Global Competitiveness Index (GCI) 2009-2010 moved up from 55 to 54 (score 4.26) which is
the third consecutive rank increase since 2007. The increase mainly supported from business establishment factor and innovation factor.
Indonesia has been one of the few countries leading the economic recovery, with a resilient growth over the last 2
years. One of the rare countries which successfully posted a positive growth rate in 2009, the third fastest growing economy in the G20. Even during the worst of the global economic slowdown, the economy was still able to generate a positive growth of 4.4% in Q1-2009, 4.0% in Q2-2009, and 4.2% in Q3-2009. For overall 2009 we expect to record
growth within the range of 4 –4.5%.
Banking industry has stayed resilient with high level of CAR (17.6%) and NPL (gross) at a subdued level 0f 4.3% and net at 1.2% (latest data as of October 2009)
By end of the Q3-2009, Indonesia's overall balance of payments recorded a surplus of US$3.5 billion (Q2-2009:
US$1.1 billion), resulted from surpluses in both the current account as well as the capital and financial account.
International reserves reached US$65.84 billion as of end of November 2009, equivalent to about 6.5 months of imports and official debt service payments.
The rupiah exchange rates have been showing an appreciating trend, mainly supported by continuing of global economic recovery and domestic economic performance. Overall 2009, rupiah exchange rates have been reflecting an appreciating trend. The rupiah exchange rate strengthened over USD by 15.3% at end of November 2009, to Rp. 9455/USD from Rp. 10,900/USD at end of 2008.
Macroeconomic Highlights
Up to end of November 2009, the CPI recorded 0.03% deflation (m-t-m) alongside annual inflation at 2.41% (y-o-y). Accordingly, potential inflation in 2009 to come below the BI inflation target set at 4.5%±1%. The decline in inflationary pressures was mainly driven by the low administered price and volatile food inflation in line with government policy to adjust the price subsidized fuel at the beginning of the year and the adequacy of supply and smooth distribution. Low imported inflation as well as rupiah appreciation had also contributed to maintain CPI inflation at the low level.
The latest monthly Board of Governors’ Meeting convened in December 2009 decided to leave BI Rate unchanged at
6,50%, which is considered adequate to the economic recovery process. the Board of Governors believes that the monetary relaxation brought about by the 300 bps decline in the BI Rate offers ample support for the economic
recovery process and bank intermediation. At 6.50%, the BI Rate level is also deemed consistent with the achievement of the 2010 inflation target, set at 5%±1%.
Fiscal policy is taking into account the need to stimulate the economy and will continue at a slower pace in 2010. Tax policy reform continues with lower tariff and higher compliance.
2010 Budget provides fiscal space to implement priority programs of the government.
Indonesia has been one of the few countries leading the economic recovery, with a resilient growth over the last 2 years. One of the rare countries which successfully posted a positive growth rate in 2009, the third fastest growing economy in the G20. Even during the worst of the global economic slowdown, the economy was still able to generate a positive growth of 4.4% in Q1-2009, 4.0% in Q2-2009, and 4.2% in Q3-2009. For overall 2009 we expect to record growth within the range of 4–4.5%.
7
Diversified financing alternatives in place
Effective governme nt measures supporting Indonesia’ s economic stability Fiscal stability in face ofexternal
economic shocks
Maintain healthy financial systems through regulations and
crisis protocols
Rebalancing of debt maturities
Counter-cyclical measures to offset external shocks Provide monetary policy support
to real sector growth
Flexible state budget factoring in potential downside risks
Fuel price automatic adjustment with maximum cap
Enhance debt issuance strategy Effective government measures supporting Indonesia’s economic stability
Proactive and prudent debt management
Fiscal stability in
face of external economic
shocks
Macroeconomic Highlights
Maintaining macro-economic stability
Maintaining confidence in the market
Increasing the deposit guarantee coverage (from Rp100 million to Rp2 billion)
Providing sufficient liquidity for banks
Simplifying and reducing the minimum Reserve Requirement
Broadening access of BankIndonesia’s Short Term Funding Facility to more banks in need
Strengthening the Financial Safety Net arrangement
Works underway to issue a law on Financial Safety Net
Maintaining credit growth momentum by issuing several prudential measures:
Assessing credit quality only based on 1 pillar (payment punctuality) for SME loans meeting various criteria
Gradual implementation of Uniform Classification System and the use of warehouse receipts as collateral
Increase in Legal Lending Limit for projects effecting the welfare of many
Reduction in Risk Weighted Assets for some SMEs, Home Ownership Loans, and employee and retiree loans
Increased intensity in foreign bank branch offices and joint venture banks
Response to the Crisis: Monetary and Banking
Indonesia Development Policy is based on a
‘Triple
Track
Strategy’
1st
Pro-Growth:
Increase Growth by prioritizing export and investment
2nd
Pro-Job :
Boost up the real sector in order to create jobs
3rd
Pro-Poor:
Revitalize agriculture, forestry, maritime, and rural economy
to reduce poverty
Real Sector: Indonesia Development Policy
Provide more direct subsidy for medium and low income households
Additional expenditure on infrastructure projects which have greater impact on employment creation and poverty reduction
Introduce Tax Saving measures for Business through: – Additional 5% tariff reduction for >= 40%
listed companies
– Introduce tax incentives for selected sectors and regions
– Reduce tariffs for selected sectors e.g. crude palm oil – Tax Subsidy on various product & Sectors/industry Provide discount on electricity peak-hour charge for
industries and reduction of diesel fuel price Upsizing budget financing from bilateral and
multilateral organisations Earmark expenditure on lower priority projects and imports
Cutting tax rate by 2% for Corporate and Individual income tax
Redefine “emergency situation” in State Budget Law 2009 (Article 23) to create stimulus package and contingencies deficit financing
Increase fiscal risk provision in response to possible economic slow down
Shift financing sources from marketable securities to contingencies financing facilities
Prepare crisis protocol through the implementation of the “Financial System Stability Committee”
Offensive (Counter-Cyclical) Measures (New Initiatives)
Defensive Measures (Existing)
Indonesia is Moving from a Defensive to Offensive Stance While Maintaining Fiscal Sustainability
10 Source: Ministry of Finance.
Response to the Crisis: Fiscal
Indonesia Story: as Acknowledged by Rating Agencies
Despite of the global crisis, the Republic continued to receive good review from Rating agencies:
Moody’sInvestors Service (16 September 2009): upgraded Indonesia’sforeign and local-currency sovereign debt ratingsto Ba2 with stable outlook. The upgrade was prompted by the Indonesian economy’s relatively strong resilience to the global recession as well as its healthy medium-term growth prospects.
S&P (23 October 2009): revised the outlook on Indonesia’s BB- rating to positive from stable. The outlook change takes into account their
expectation that debt reduction and underlying cautious fiscal management will remain key elements of macroeconomic policy. It also incorporates S&P view that a reform-minded leadership with a fresh and increased mandate will continue to pursue microeconomic reforms to increase Indonesia's growth potential, and further strengthen policy coordination and implementation thorough administrative reforms.
CCC-CCC+ B BB-BB+ BBB SD/DDD R/C CC CCC B-B+ BB BBB-Ca Caa2 B3 B1 Ba2 Baa3 Baa1 BBB+ C Caa3 Caa1 B2 Ba3 Ba1 Baa2 Economic Crisis in 1998 Banks Recapitalization
Continuous fiscal adjustment, improving liquidity and structural
improvements in real economy
Sound record of fiscal management on the success of Government efforts to improve
the investment climate
Current Ratings: Moody’s: Ba3 S&P: BB-Fitch BB
Diminished likelihood that the Government will seek additional
debt rescheduling
Gradually improving external liquidity, macroeconomic stability and improved political
conditions
Jan 09: Fitch affirms ratings
Sep 09: Moody’s
upgrade to Ba2 (stable outlook)
Oct 09: S&P revised outlook
to positive
During 2007 - 2008, the economy performed steadily at 6,2% in average which was the highest GDP growth after Asian crisis. However, in Q4-2008, Indonesia’s economic performance began to moderate as an impact of the global economic downturn.
Furthermore, GDP growth in Q1-2009 and Q2-2009 were 4,4% and 4,0% (yoy), lower than the preceding year. The softening GDP growth was largely the result of sharp falling in export, commensurate with the deterioration in global economic condition and its impact on purchasing power. Despite this, economic activity fuelled by the national election activities is expected to keep the domestic economy from further decline.
Entering the third quarter-2009, global economic development showed a more obvious recovery. Various indicators indicate it is even faster than previously thought . This gives confidence that the world GDP will go beyond its lowest point in Q1-2009 and note an increase until the end of 2009. Household consumption remains strong, primarily supported by the maintained household confidence level to the domestic economic perform ance. As a result, the Indonesian economy in Q3-2009 charted a 4,2% growth (yoy) and showed an upward trend leaving its bottom behind at Q2-2009.
For 2009 overall, Bank Indonesia forecasts Indonesia's economic growth to reach 4.3%. In 2010, the Indonesian economy is forecasted to grow in the range of 5.0%-5.5%, with growth in 2011 climbing to 6.0%-6.5%. This improving growth trend is predicted alongside more rapid recovery in the world economy, steady improvement on financial and banking markets and the secure condition of domestic fundamentals.
Economic Growth Sustained
The economic growth is relatively strong compared to regional economies.
Strong Growth in the Last Two Years
4.2 % 4.90% 5.69% 5.51% 6.32% 6.14% 3.0 4.0 5.0 6.0 7.0 3.0 4.0 5.0 6.0 7.0 8.0
M
ar
Ju
n
Se
p
De
c
M
ar
Ju
n
Se
p
De
c
M
ar
Ju
n
Se
p
De
c
M
ar
Ju
n
Se
p
De
c
M
ar
Ju
n
Se
p
De
c
M
ar
Ju
n
Se
p
2004 2005 2006 2007 2008 2009
%, y-o-y %, y-o-y
YoY Change By Quarter YoY Change (Annual - RHS)
Source: Bank Indonesia, BPS.
The Indonesian banking sector continues to maintain financial stability and show positive performance
(as of October 2009):
Strong solvency, with CAR level of 17.6%
Controllable credit risk exposure, with NPLof 4.3% (gross) and 1.2% (net)
Remains to be profitable, with ROAof 2.7%
Banking Stability
13 Source: Bank Indonesia
In Trillions of rupiah unless stated otherwise
Total Asset (Rp T) 1,469.8 1,693.5 1,986.5 2,122.6 2,310.6 2,352.1 2,354.3 2,388.6 2,392.7
Deposits (Rp T) 1,127.9 1,287.0 1,510.7 1,601.4 1,753.3 1,786.2 1,824.3 1,857.3 1,863.5
Loans (Rp T) 695.6 792.2 1,002.0 1,246.1 1,307.7 1,305.4 1,335.4 1,366.1 1,376.9
Net Interest Income (Rp T) 70.9 83.1 96.4 81.6 113.1 31.4 63.5 94.6 106.3
CAR (%) 19.5 20.5 19.3 16.5 16.2 17.4 17.0 17.7 17.6
NPLs Gross (%) 8.3 7.0 4.6 3.9 3.8 4.5 4.5 4.3 4.3
NPLs net (%) 4.8 3.6 1.9 1.4 1.5 1.9 1.7 1.3 1.2
ROA (%) 2.6 2.6 2.8 2.6 2.3 2.8 2.7 2.6 2.7
BOPO (%) 87.7 86.4 78.8 79.7 84.1 82.3 82.2 82.0 81.7
Number of Banks 131 130 130 126 124 123 122 121 121
Oct-09 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
Strong Balance of Payments Performance
Indonesia's balance of payments in Q3-2009 posted a surplus of US$3.5 billion (Q2-2009: US$1.1 billion),
resulted from surpluses in both the current account as well as the capital and financial account.
14
Balance of Payments
Inflation has Been Trending Downward
Headline Inflation Trending Down from Peak
2009 Inflation expectation is in a downward trend to chart a remarkably low inflation.It is mainly related with the strong consumer and business confidence on the government and monetary policy as well as exchange rate stability, the absence of administered price policy, and better food supply management.
Fundamentally, inflationary pressure tend to decline which is related to the level of global economic recovery and rupiah appreciation. While international commodity prices began to increase, imported inflation still remained low. It contributed on maintaining CPI inflation at the low level, which per end of November 2009 was at the level of 0.03% deflation (m-t-m) alongside
annual inflation at 2.41% (y-o-y). Accordingly, potential inflation in 2009 to come below the Bank Indonesia inflation target set at
4.5%±1%. For years 2010 and 2011, as the economic is expected to be improving, inflation is forecasted to return to its normal path within the range of 5%±1%.
Source: Bank Indonesia, BPS.
In line with slowing demand, globally and domestically, we estimate subdued inflationary pressure in 2009. Against this backdrop, CPI inflation in 2009 is predicted to be in the lower end of the target range 4.5%+1%.
Looking forward, inflation in 2010 is forecasted to return to normal alongside renewed strength in domestic economic activity and commodity prices. Bank Indonesia continues in monitoring global economic developments and taking the necessary measures to safeguard macroeconomic stability while maintaining a conducive climate for the economy.
To enhance the effectiveness of monetary policy transmission, BI will encourage systemically important banks (SIBs) to play significant role as market leaders in setting the deposit and credit rates. BI will also encourage banks to continue extending credit to the real sector, without abandoning prudential banking policy.
Inflation Expectation
CPI Inflation Forecasts Inflation Expectation – Consensus Forecast
16 Source: Bank Indonesia
4 .9 5 .5 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Ja n -0 8 F e b -0 8 M a r-0 8 A p r-0 8 M a y -0 8 Ju n -0 8 Ju l-0 8 A u g -0 8 S e p -0 8 O c t-0 8 N o v -0 8 D e c -0 8 Ja n -0 9 F e b -0 9 M a r-0 9 A p r-0 9 M a y -0 9 Ju n -0 9 Ju l-0 9 A u g -0 9
%, yoy
Ekspektasi Inflasi - Consensus Forecast
Exchange rate: Strengthened and more stable through 2009
Rupiah Exchange Rate –Against USD Exchange Rate Movement –Indonesia Compared to Regional
17 Source: Bank Indonesia.
Rupiah appreciated substantially spurred by increasing investor risk appetite due to improvement in global economic recovery outlook. Investors’ preference to hold rupiah assets were also supported by better economic growth in 2009 along with outperformed regional economy. Foreign investors purchased the rupiah assets such as SBI, government bonds (SUN), and stocks.
Rupiah strengthened from Rp10,950 per USD at the beginning of this year to Rp9,436 per USD on December 4th, 2009, the strongest appreciation among other Asian currencies.
Rupiah Exchange Rate along Q4-2009 strengthened 5.39% up to end of November to Rp9.463 against USD, with a slightly increasing volatility. 11,578 10,527 9,973 9,463 9,666 10,464 8600 9000 9400 9800 10200 10600 11000 11400 11800 12200 12600 Ja n -0 8 F e b -0 8 M a r-0 8 A p r-0 8 May -0 8 Ju n -0 8 Ju l-0 8 A u g -0 8 S e p -0 8 O c t-0 8 N o v -0 8 D e c -0 8 Ja n -0 9 F e b -0 9 M a r-0 9 A p r-0 9 May -0 9 Ju n -0 9 Ju l-0 9 A u g -0 9 S e p -0 9 O c t-0 9 N o v -0 9
Kurs Harian
Rata-rata Triwulanan
Rata-rata Tahunan
Rp/USDDaily E.R. Quarterly Average Annual Average
4.46 8.14 4.48 4.43 15.28 0.80 1.77 6.60 9.99 -14.40 -3.04 -4.12 -7.62 -6.81 -5.71 -5.99
-20.00 -10.00 0.00 10.00 20.00
JPY KRW SGD THB IDR PHP MYR EUR
Apr/Depr Rata-rata Tahunan Apr(+)/Dep(-) Kurs (point to point) %
Apresiasi
Depresiasi
Annual Average Point to point exchange rate Depreciating
Exchange Rate and Equity Markets
Source: Ministry of Finance, Bank Indonesia, Bloomberg.
Improved Confidence in the Equity Market
In line with the strengthening of rupiah, the Indonesia stock market index also rebound reflecting investors confidence on the economy.
The stock index rose significantly from 1355 at the end of 2008 to 2,469 at November 19th, 2009, one of the best performing equity index in the region this year.
18
8000
8500
9000
9500
10000
10500
11000
11500
12000
12500
13000 1000.00
1500.00 2000.00 2500.00 3000.00
Performance of the Global Bond Has Been Significantly Improved
Global Bond Yield: Indonesia and Peers
RoI Government Global Bond yield is lowered to converge with peers’ level
Source: Bloomberg,
19 3 5 7 9 11 13 15 17
Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09
20
In 2010, the Indonesian economy is positioned to grow beyond original forecasts
GDP Growth
is forecasted at about 5.0%-5.5%
The continued strength of household consumption growth Better than expected exports and the Government stimulus.
The brisk household consumption is bolstered by high levels of consumer confidence commensurate with low inflation and interest rates, in addition to the income effect of rising export revenues.
Externally, export performance will improve on the growing strength of global economic recovery and increases in prices for oil and natural gas as well as non-oil and gas commodities.
2010 Forecast Main Factors Behind The Forecast
20 Source: Bank Indonesia.
Inflation
is estimated to be on target at range of
5.0% 1%
CPI inflation is predicted to return to normal levels in the range of 5±1%. On the fundamentals side, pressure from core inflation is predicted to mount overall.
On the domestic front, the more invigorated economic growth in 2010 is also expected to fuel inflation, as indicated by the modest rise now visible in total capacity utilization.
Export
is expected to chart higher growth
Global economic recovery will produce renewed acceleration in exports. The global economy is predicted to enter an expansionary phase in 2010. Renewed momentum is predicted for the economies of Indonesia’s major trading partners, such as Japan, China and Singapore. This strengthened performance will position exports as one of the main engines of economic growth in 2010.
Indonesian exports characteristics which is based on primary commodities has also supported export growth acceleration.
Private
Consumption
will remain strong
Household consumption is forecasted to maintain vigorous expansion, driven by improvement in external factors. The strengthening global economic outlook for 2010 will given added momentum to Indonesia’s exports, which in turn will produce an overall increase in private incomes.
Monetary Policy Stance
BI Rate
22
Since December 2008, BI has slashed BI Rate by 300 bps. The monetary relaxation has offered ample support for the economic recovery process and bank intermediation.
In the latest Board of Governors' Meeting on December 3, 2009, Bank Indonesia decided to keep the BI Rate at 6.5%. Following an evaluation of the economy in 2009 and deliberation of the future economic outlook, The Board of Governors believes that the monetary relaxation brought about by the 300 bps decline in the BI Rate since October 2008, have been offering ample support for the economic recovery process and bank intermediation. At 6.50%, the BI Rate is also deemed consistent with achievement of the inflation target for 2010, set at 5%±1%.
Source: Bank Indonesia.
12.75%
8.00%
8.75%
6.50%
0% 2% 4% 6% 8% 10% 12% 14%
In line with slowing demand, globally and domestically, we estimate subdued inflationary pressure in 2009. Against this backdrop, CPI inflation in 2009 is predicted to be in the lower end of the target range 4.5%+1%.
Looking forward, inflation in 2010 is forecasted to return to its normal path alongside renewed strength in domestic economic activity and commodity prices. Bank Indonesia continues in monitoring global economic developments and taking the necessary measures to safeguard macroeconomic stability while maintaining a conducive climate for the economy.
To enhance the effectiveness of monetary policy transmission, BI will encourage systemically important banks (SIBs) to play significant role as market leaders in setting the deposit and credit rates. BI will also encourage banks to continue extending credit to the real sector, without abandoning prudential banking policy.
Inflation Expectation
CPI Inflation Forecasts Inflation Expectation – Consensus Forecast
23 Source: Bank Indonesia
4 .9 5 .5 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Ja n -0 8 F e b -0 8 M a r-0 8 A p r-0 8 M a y -0 8 Ju n -0 8 Ju l-0 8 A u g -0 8 S e p -0 8 O c t-0 8 N o v -0 8 D e c -0 8 Ja n -0 9 F e b -0 9 M a r-0 9 A p r-0 9 M a y -0 9 Ju n -0 9 Ju l-0 9 A u g -0 9
%, yoy
Ekspektasi Inflasi - Consensus Forecast
Latest Macroeconomic Indicators
2010 Growth provides a higher target of 5.0-5.5% with strong improvement expected in investment and export performance
Growth Projection
Politics: Continue and Stronger Government and Parliament Support (>60% seats)
Policy Support 2010:
Stimulus budget continues, stable currency and better crisis prevention measures
Economic Policy supports: tax rate reduction, trade financing, cost of fund, one stop service, civil service reform, sets of new laws pro investment (local taxes, energy, power, infrastructure, etc).
Source: Bank Indonesia, BPS.
25
Components 2008 2009 2010
I II III IV Annual* Annual*
GDP Growth (%) (yoy) 6.1 4.5 4.0 4.2 4.4 4.3 5.0-5.5
Total Consumption 5.9 7.3 6.3 5.4 4.3 5.8 5.1-5.3
Household Consumption 5.3 6.0 4.8 4.8 4.8 5.1 5.1-5.3
Total Investment 11.7 3.5 2.6 4.0 4.6 3.7 8.5-8.7
Domestic Demand 7.4 6.3 5.3 5.0 4.4 5.2 6.0-6.2
Export 9.5 (-18.7) (-15.5) (-8.2) (-5.4) (-12.0) 81-.1-9.0 Import 10.0 (-26.0) (-23.9) (-18.3) (-6.2) (-18.9) 10.8-11.1
The Indonesian banking sector continues to maintain financial stability and show positive performance
(as of October 2009):
Strong solvency, with CAR level of 17.6%
Controllable credit risk exposure, with NPLof 4.3% (gross) and 1.2% (net)
Remains to be profitable, with ROAof 2.7%
Banking Stability
27 Source: Bank Indonesia
In Trillions of rupiah unless stated otherwise
Total Asset (Rp T) 1,469.8 1,693.5 1,986.5 2,122.6 2,310.6 2,352.1 2,354.3 2,388.6 2,392.7
Deposits (Rp T) 1,127.9 1,287.0 1,510.7 1,601.4 1,753.3 1,786.2 1,824.3 1,857.3 1,863.5
Loans (Rp T) 695.6 792.2 1,002.0 1,246.1 1,307.7 1,305.4 1,335.4 1,366.1 1,376.9
Net Interest Income (Rp T) 70.9 83.1 96.4 81.6 113.1 31.4 63.5 94.6 106.3
CAR (%) 19.5 20.5 19.3 16.5 16.2 17.4 17.0 17.7 17.6
NPLs Gross (%) 8.3 7.0 4.6 3.9 3.8 4.5 4.5 4.3 4.3
NPLs net (%) 4.8 3.6 1.9 1.4 1.5 1.9 1.7 1.3 1.2
ROA (%) 2.6 2.6 2.8 2.6 2.3 2.8 2.7 2.6 2.7
BOPO (%) 87.7 86.4 78.8 79.7 84.1 82.3 82.2 82.0 81.7
Number of Banks 131 130 130 126 124 123 122 121 121
Oct-09 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
With prudential and governance principles in place, the Indonesian banking system has fairly insulated itself from the adverse impacts of global financial meltdown and has been able to weather the global crisis
Prudential and governance principles have prevented banks from:
having exposures in equity markets
investing in real estate and property markets
engaging in other speculative transactions, including sub-prime lending and investing in US sub-prime
mortgage securities
Banks have exercised prudence and stronger governance. As a result, banks in general maintain:
High CAR
Low NPL
There is still much room for increased credit growth
The Indonesian Banking sector: Weathering the Global Crisis
Prudential Measures To Mitigate Instability
29 Source: Bank Indonesia
Statutory reserve has been adjusted to mitigate systemic liquidity risk. Banks are required to maintain statutory and secondary reserves. Statutory reserves have been lowered to 5.0% for domestic currency (Indonesian Rupiah) plus 2.5% secondary reserves must be pledged in the form of SBI (BI Certificate) and Government Bonds;
Statutory reserves for foreign currency are lowered to 1% (previously 3%). Banks have to meet statutory reserve requirements by October 24, 2009 to allow sufficient time for portfolio adjustments;
Swap has been extended from 7 days to 1 month;
Banks may request foreign exchange to meet their customers’ need against underlying transactions. This allows smooth demand for foreign currencies in the domestic market;
Bank Indonesia renewed provision of short-term liquidity facility to provide access for all bank in severe liquidity constraints. Collateral requirements are also extended. The new policies allow banks to also include performing loans as collaterals from previously only high quality securities;
Bank Indonesia may provide emergency liquidity financing to prevent systemic crisis;
Structured products are subject to license from Bank Indonesia;
Regulation to enhance quality of risk management has been launched in July 2009. Banks are required to have enhanced risk management processes in 8 risk areas.
30
•
In the international level, Indonesia is a member of G-20;
•
G-20 has 50 action plans as prompt corrective measures to restore global financial system stability;
•
Indonesia has been a member of Financial Stability Board (FSB) and Basel Committee on Banking
Supervision (BCBS) since April 2009:
•
In the FSB, Indonesia is member of Standing Committee of Supervisory and Regulatory Cooperation (SC
SRC);
•
Indonesia is also a member of Working Group on Cross Border Crisis Management (WG CBCM);
•
The FSB has important initiatives for international co-operation in financial stability, cross-border crisis
management, supervisory college, and early warning exercise;
•
FSB will have greater role and an agency drafting the global standards for financial system stability
maintenance
•
BCBS has initiatives to enhance banking regulatory framework including Basel II and international
accounting standards
Enhanced International Collaboration
Balance of Payments Q3
–
2009
Indonesia’s Balance of Payments (BOP) in Q3-2009 recorded a surplus of US$D3.5 billion compared to a
surplus of US$1.1 billion in the preceding quarter. Both
the current account and the capital and financial account
positively contributed to this surplus. In line with the
surplus, the official reserves increased from US$57.6
billion at end of June 2009 to US$62.3 billion (equivalent
to 6.1 months of imports and official debt service
payments) at end of September 2009. This increased in
reserves was also supported by an additional SDR
allocation from the IMF amounted to US$2.7 billion.
The current account posted a surplus of US$1.7
billion, smaller than a US$2.9 surplus in Q2-2009. This
smaller surplus was primarily due to a descent in the
performance of the non-oil & gas trade balance and the
oil trade balance.
Overall Balance and Current Account
Balance of Payments Q3
–
2009
Trade Balance: Non-Oil & Gas
Non-oil and gas exports maintained their
previous quarter increasing trend, supported by
the still strong demand from some Asian
countries and the sustained increase in
international market prices of leading primary
export products. Nevertheless, acceleration in
domestic economy activities promoted non-oil
and gas imports to grow faster (16.3% q.t.q) than
exports (9.5% q.t.q). Hence, surplus on non-oil
and gas trade balance decreased in Q3-2009
to US$5.9 billion (Q2-2009: US$6.4 billion
surplus).
Balance of Payments Q3
–
2009
Trade Balance: Oil & Gas
Accelerated domestic economy activities
accompanied by a seasonal increase in fuel
consumption during the holy month of
Ramadhan and Eid ul-Fitr festivities resulted in
a deficit in the oil trade balance, after posting
a small surplus in the previous quarter.
On the other hand, the gas trade balance
surplus increased in Q3-2009 in line with the
gas price escalation and the commencement of
Tangguh gas field production. In turn, this
condition contributed to the surplus in the
overall oil & gas trade balance.
Balance of Payments Q3
–
2009
• The services account deficit posted a small
increase in Q3-2009 mainly due to increase in freight outflow following an expansion in imports.
• The deficit on income account also rose,
mainly due to a seasonal increase in yield payments to foreign portfolio investors. The deficit was also contributed by increased
profit transfers by direct investment
enterprises in the oil & gas sector in line with the increased oil and gas production.
• The surplus in current transfers was
relatively stable as inflows and outflow of
workers’ remittances were about the same
level as the previous quarter.
Services, Income, and Current Transfers
Balance of Payments Q3
–
2009
The financial account registered a surplus of US$3.0 billion in Q3-2009 compared to a US$2.2 billion deficit in Q2-2009. This surplus was resulted from
the improved performance of
portfolio investment and other investments.
Financial Account
Balance of Payments Q3
–
2009
Financial Account: Foreign Direct Investment
Net Foreign Direct Investment (FDI)
posted a surplus of US$0.4 billion in Q3-2009 compared to a US$1.3 billion surplus in Q2-2009.
This downturn was both registered by net FDI in oil and gas and non-oil and gas
sectors. The increase in cost recovery to
foreign investors was the major contributor to the deficit in oil and gas FDI. A smaller net inflows of non-oil & gas FDI was related to the negative impacts of global recession on domestic investment climate. It is expected to improve in the coming year following stronger signs of global economic recovery.
37 Source: Bank Indonesia
2008
up to Q3-2009
Singapore
21%
14%
EU
16%
10%
Japan
11%
20%
Balance of Payments Q3
–
2009
Financial Account: Foreign Portfolio Investment
Foreign portfolio investment posted a surplus of US$3.3 billion
in Q3-2009 compared to a surplus of US$1.6 billion in the previous quarter. The steady improvement in domestic macroeconomic conditions combined
with attractive interest rates on
rupiah-denominated instruments
triggered higher portfolio capital
inflows, especially for SBIs
purchased by foreign investors.
Balance of Payments Q3
–
2009
Financial Account: Foreign Other Investment
Foreign other investment registered a surplus of US$4.4 billion in Q3-2009 compared to a deficit of US$1.9 billion in
Q2-2009. Improvement in economic
prospect, relaxation of global liquidity, and
relative low foreign interest rates
encouraged greater foreign borrowing by the private sector. Other investments also benefited from an additional allocation of SDRs from the IMF amounted to US$2.7
billion. This allocation was intended to
bolster the reserve assets of IMF’s member
countries, including Indonesia, as part of the efforts to resolve the global economic crisis.
State Budget 2009 - 2010
Assumptions:
Growth: 2009: 4,3% and 2010; 5.5% inflation 5% (2009) and 5% (2010) Oil price: $61/b (2009) and $65/b (2010)
Budget deficit (2009) 2,5% GDP and (2010) 1.6% GDP Tax to GDP increase from 12.1% (2009) to 12.5% (2010)
Ministries Spending and Regional Transfer, each accounted for app 35% Energy Subsidies and interest payment app 20%
41 Source: Ministry of Finance.
Budget Financing 2009
–
2010
Assumptions:
Funding Needs: 2009: US$24.4 billion (almost secured) and 2010; US$ 22.9 billion. If 2010 market conditions improve, there is room to provide additional financing. Budget financing rely on government securities (bonds) mainly Rupiah,
and the rest from global bond (conventional and sukuk).
Non-Debt Financing 2009 mainly coming from accumulated cash/budget surplus in 2008.
Bio $ % to GDP Bio $ % to GDP
Deficit 12.9 2.5% 9.8 1.6%
Principal
- Bonds 4.5 0.8% 7.3 1.2%
- Ext Loan 6.9 1.3% 5.8 1.0%
Needs 24.4 4.5% 22.9 3.8%
Source 24.4 4.5% 22.9 3.8%
- Bonds 14.4 2.7% 17.7 3.0%
- Ext Loan 6.9 1.3% 5.7 1.0%
- Non-Debt 3.1 0.6% -0.5 -0.1%
2009 2010
In US$ Billion
42 Source: Ministry of Finance.
2009 State Budget
IDR in Trillions Original Stimulus Doc Revised Budget % to GDP
Total Revenue And Grants 985.7 848.6 871.0 16.1
I Domestic Revenue 948.8 847.6 870.0 16.0
1. Tax Revenue 725.8 661.8 652.0 12.0
2. Non-Tax Revenue 258.9 185.9 218.0 4.0
II. Grants 0.9 0.9 1.0 0.0
Expenditures 1037.1 988.1 1000.8 18.54
I. Central Government Expenditure 716.4 685.0 691.5 12.8
Subsidy 166.7 123.5 158.1 2.9
II Expenditure To Regional 320.7 303.1 309.3 5.7
1. Balanced Funds 296.9 279.3 285.1 5.3
A Revenue Sharing 85.7 68.1 73.8 1.4
B General Allocation Fund 186.4 186.4 186.4 3.4
C Special Allocation Fund 24.8 24.8 24.8 0.5
2. Special Autonomy and Adjustment Fund 23.7 23.7 24.3 0.5
Overall Balance (A-B) (51.3) (139.5) (129.8) -2.4
Financing (E.I + E.II) 51.3 139.5 129.8 2.4
I. Domestic Financing 60.8 109.5 142.6 2.7
1. Domestic Bank Financing 16.6 65.8 56.6 1.1
2. Domestic Non-Bank Financing 44.2 43.7 86 1.6
II. Foreign Financing (9.4) (14.5) (12.7) -0.2
1. Gross Drawing 52.2 57.6 69.3 1.3
A Program Loan 26.4 31.9 30.3 0.6
B Project Loan 25.7 25.7 39.0 0.7
2. Amortization Of Foreign Debts (61.6) (72.1) (69.0) -1.3
43 Source: Ministry of Finance.
State Budget (Revised 2009 and 2010) - Revenue
State Budget 2009 - Expenditures
State Budget 2009 - Overall Balance
2009 Funding Plan
1. Redemption and buyback amount subject to change 2. GDS stands for Government Debt Securities
2009 Budget Revised
2009 Deficit 129.8tr
Amortization of existing debt 114.6tr
External Loan 69.0tr
Gov. Securities (includes
buyback) 45.6tr
Financing Required 244.4tr
Sources of Financing
Non Debt (includes2008
surplus) 30.3tr
Gross Debt Financing 214.1tr
Government Securities 144.8tr
Program Loans 30.3tr
Project Loans 39.0tr
The 2009 Budget has been designed to give the Government enough room to adjust to any potential impact of the global credit crisis
Budget Deficit Financing (in IDR)
The Government’s funding plans are well on-track with realized government securities issuance at 100.01% of gross issuance required in the 2009 Revised Budget.
47
Net Issuance Realization as of December 4, 2009
2009 Issuance Program IDR tr
Original 2009 Budget
Government Securities Net Financing: 54.7
Revised 2009 Budget
Government Securities Net Financing: 99.3
Redemption + Buyback (1) (45.3)
Net Realization (December 4, 2009) 99.86
Gross Issuance: 144.56
Coupon GDS (2) 54.49
Retail bonds 8.54
Retail Sukuk 5.55
Zero coupon GDS (2) 24.7
T’bill for Local Govt 0.5
Domestic Sukuk 3.98
International Sukuk 7.03
International bonds 39.77
Redemption + Buyback (44.7)
2009 Issuance Program IDR tr
Original 2009 Budget
Government Securities Net Financing: 54.7
Revised 2009 Budget
Government Securities Net Financing: 99.3
Redemption + Buyback (1) (45.3)
Net Realization (December 4, 2009) 99.86
Gross Issuance: 144.56
Coupon GDS (2) 54.49
Retail bonds 8.54
Retail Sukuk 5.55
Zero coupon GDS (2) 24.7
T’bill for Local Govt 0.5
Domestic Sukuk 3.98
International Sukuk 7.03
International bonds 39.77
Redemption + Buyback (44.7)
2010 Budget Deficit is proposed at 1.6%; taking into account the confidence in sustainability of government’s financing resources ability
32 33 35 39 47 57 61 67 77 89 85 30 0 1000 2000 3000 4000 5000 6000 7000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 2010* Triillion Rp 0 10 20 30 40 50 60 70 80 90 100 %
GDP Outstanding Debt Debt ratio to GDP
Main financing resources for 2010 financing deficit Rp98 T (US$9.8 bio) Government bond issuances, net Rp104,4 T (US$ 10.4 bio)
Various tenors (long and short term)
Diversified Instruments (Sukuk, conventional, GMTN, direct buying, retail, non-tradable bonds) External debt, gross Rp57,6 T (US$ 5.7 bio)
Program loans (from World Bank, ADB, IDB, Japan & France)
Project loans, particularly for multi-year activity
Contingencies' Loan from World Bank, ADB, Japan Samurai and Australia provide a market confident
Budget Deficit 2010
48 Source: Ministry of Finance.
State Budget Financing 2009
50 Source: Ministry of Finance.
IDR trillion
2009-Budget % of GDP
2009-Revised Budget
% of GDP
(A) (C)
Total Revenue & Grants 985.7 18.5% 871.0 16.1%
of which Tax Revenue 725.8 13.6% 651.9 12.1%
Non Tax Revenue 259.9 4.9% 219.1 4.1%
Expenditure 1,037.1 19.5% 1,000.8 18.5%
of which Interest payment 101.6 1.9% 109.6 2.0%
Domestic 69.3 1.3% 70.7 1.3% Foreign 32.3 0.6%0.0% 38.9 0.0%0.7%
Subsidy 166.7 3.1%0.0%0.0% 158.1 0.0%0.0%2.9%
Primary Balance 50.3 0.0 (20.2) -0.4%
Overall Balance (51.3) -1.0% (129.8) -2.4%
Financing 51.3 1.0%0.0% 129.8 2.4%0.0%
Non Debt 6.0 0.1% 43.2 0.8%
Debt 45.3 0.9%0.0% 86.6 1.6%0.0%
Govt Securities (Net) 54.7 1.0%0.0% 99.3 0.0%1.8%
Official Borrowing (Net) (9.4) -0.2% (12.7) -0.2%
Additional Debt - 0.0%
Assumptions:
GDP (trillion) 5,327.5 5,401.6 Growth (%) 6.0 4.3 Inflation (%) 6.2 4.5 3-mo SBI (% avg) 7.5 7.5 Rp / USD (avg) 9,400.0 10,500 Oil Price (USD/barrel) 80.0 61
Notes:
Central Government Expenditure = Total Expenditure minus Transfer to Regions Debt Service = Principal and Interest Payment
GDP 2008 projected based on numbers from BPS
* = Preliminary + = GDP Based on numbers from BPS
** = Very Preliminary ++ = GDP Based on Assumption on 2009
Revised Budget *** = Very Very Preliminary
Debt to GDP Ratio Debt Composition
Debt Figure, 2004
–
2009
Per Law Number 17/2003 concerning State Budget, stipulated that the growth of debt should not exceed Indonesia economic growth with the following key measures:
– Overall Balance (deficit) should be less than 3% of GDP, and
– Total Debt to GDP ratio should be less than 60%
57%
47%
39%
35%
33%
30%
0% 10% 20% 30% 40% 50% 60%
2004 2005* 2006** 2007*** 2008+ 2009++
51 Source: Ministry of Finance.
50% 50% 53% 53% 48% 52% 50% 50% 47% 47% 52% 48%
0% 20% 40% 60% 80% 100%
2004 2005 2006 2007^ 2008^^ 2009^^^ Domestic Debt External Debt
Notes:
^ : Preliminary ^^ : Very Preliminary
Debt To GDP
Notes:
* = Preliminary ** = Very Preliminary *** = Very Very Preliminary
+ = GDP Based on numbers from BPS
++ = GDP Based on Assumption on 2009 Revised Budget
52 Source: Ministry of Finance.
2004 2005* 2006** 2007*** 2008+ 2009++
GDP 2,295,826.20 2,774,281.00 3,339,480.00 3,949,321.40 4,954,028.90 5,401,640.30
Debt Outstanding (billion IDR) 1,299,504.02 1,313,294.73 1,302,158.97 1,389,415.00 1,636,740.72 1,602,128.25
- Domestic Debt (Securities) 653,032.15 658,670.86 693,117.95 737,125.54 783,855.10 830,128.65 - Foreign Debt (Loan+Securities) 646,471.87 654,623.87 609,041.02 652,289.46 852,885.62 771,999.60
Debt to GDP Ratio 56.60% 47.34% 38.99% 35.18% 33.04% 29.66%
- Domestic Debt to GDP Ratio 28.44% 23.74% 20.76% 18.66% 15.82% 15.37% - Foreign Debt to GDP Ratio 28.16% 23.60% 18.24% 16.52% 17.22% 14.29%
-10 20 30 40 50 60 70 80 90 100 110 120 130 140
External Loan 29 54 48 47 48 47 47 42 36 35 33 31 26 20 15 11 10 8 7 5 3 3 3 2 2 1 1 1 1 1 1 1
Government Securities - 62 39 62 42 62 43 38 36 48 51 37 17 25 21 17 17 2 14 18 - 7 - - 127 - 15 - 21 25 - - 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 2036 2037 2038 2039 2040
[Triliun IDR]
Total Debt Maturity Profile
Promissory notes to BI
Notes:
• Preliminary, as of October 31, 2009
• Excluding amortization of Non Tradable Securities (SUN-002, SU-004, and SU-007)
Outstanding of Total Central Government Debt
+ Preliminary numbers ++ Very preliminary numbers
+++ Very very preliminary numbers, as of October, 2009
[in percentage]
54 Source: Ministry of Finance.
62 61 59 64 69 69 63 62 62 67 66
71 68
64
73 77 71 71 82 85 83
102
-20 40 60 80 100 120 140 160 180
1999 2000 2001 2002 2003 2004 2005 2006 2007+ 2008++ Oct'09+++
Loan Government Securities
[Billion USD ]
Year 1999 2000 2001 2002 2003 2004 2005 2006 2007+ 2008++ Oct'09+++
Loan 47% 47% 48% 47% 47% 49% 47% 43% 42% 45% 39%
Government Securities 53% 53% 52% 53% 53% 51% 53% 57% 58% 55% 61%
Holders of Tradable Domestic Government Securities Developments in the Domestic Market
Source: Ministry of Finance
Yearly issuance schedule publicly available
Established primary dealership infrastructure
Established benchmark series
Active communication with market participants
Variety of domestic securities available
– T-Bills, fixed rate, floating rate, variable rate, zero coupon, retail bonds and Sukuk (1)
Holders of Tradable Government Securities
There is an increasing proportion of foreign and non-bank holders of Indonesian Government securities.
55
72.02% 75.07%
66.07%
59.34%
53.60%
44.13% 25.29% 17.15%
20.82%
24.30%
29.74%
37.80% 2.69%
7.78%
13.12%
16.36% 16.66% 18.07%
0% 20% 40% 60% 80% 100%
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 December 4,
2009
