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, 5thfloor
Jalan M.H. Thamrin 2 Jakarta, 10110 Indonesia
Tel +6221 381 8316
+6221 381 8319 +6221 381 8298 Facsimile +6221 350 1950
Table of Content
Executive Summary
4
Improving International Perception
8
Sustainable Economic Growth
11
Financial Development and Current Policies
20
Executive Summary: Strong Growth Continued
One of the only 3 economies which generate positive growth in 2009
The overall picture shows that economic growth remains robust bolstered by a more balanced
growth structure which lead to a strong growth prospect for overall 2010
The economy maintained brisk growth throughout Q3-2010, driven mainly by household consumption and exports. Export growth is supported mainly by strong demand from China and India and rising international commodity prices.
For the whole 2010, economic growth is projected in the range of 6.0%-6.3%. Going forward in 2011, growth is forecasted at 6.0%-6.5%, driven by continued robust household consumption, improved external sector performance as the global economy charts further recovery and higher investment.
The cumulative investment realization up to the 1st semester of 2010 is Rp92.9 trillion or grew by 39.9% (yoy). Investment is expected to accelerate from the 2nd half of 2010 as demand for additional production capacity
materializes.
The current surge of capital inflows is attributable to continued improvements in the investor’s sentiment regarding Indonesia’s promising growth prospects. As a precautionary measures, a policy mix has been implemented and is sufficient to maintain monetary and financial system stability, amid the surge in capital flows.
Strengthening performance in exports continues to produce current account surplus in Q3-2010, despite in smaller amount as compared to the preceding quarter. The capital and financial account again produced a sizeable surplus on the back of heavy capital inflows that have bolstered the value of rupiah. Taken together, the balance of payments is expected to chart a hefty surplus in Q3-2010
International reserves at end of September 2010 rising to USD86.5 billion or equivalent to 6.5 months of imports and servicing of official debt.
CPI Inflation in September 2010 reached 0.44% (mtm) or 5.80% (yoy). Pressure mostly stemmed from the surge in the volatile foods from seasonal effect of recent festivities. Even so, core inflation held at a modest 4.02% (yoy), supported in part by the appreciating trend in exchange rate.
BI decided to hold the reference rate at 6.5% in October 2010. The current level of BI Rate is still consistent with achievement of the inflation target and remains conducive in safeguarding financial stability and promoting bank intermediation for supply-side response to accelerated demand. Nonetheless, BI has taken note of the rise inflationary pressure amid heavy inflows of foreign capital and considerable levels of excess liquidity. At this condition, BI regards the economic liquidity management as a priority.
Stability in the banking system remains firm alongside steady improvement in credit growth. The solid condition is reflected in high CAR and subdued level of gross NPLs at below 5%.
Banking intermediation has strengthened further, as evident in credit growth up to September 2010 which reached 21.2% (yoy). Up to September 2010, working capital credit has expanded at a faster rate than consumption credit, and looking forward, credit growth will continue to be channelled into productive sectors. Therefore credit growth for overall 2010 is forecasted at 22%-24%, in line with the business plans prepared by banks.
Up to September 2010, almost 90% of the funding requirement forstate budget financing has been completed which focused on domestic source of financing.
Executive Summary: Preserved Macroeconomic Stability
We continue to perform a prudent fiscal management in 2010 with strong commitment to fiscal consolidation, aiming on:
- continue declining debt-to-GDP ratio
- diversifying government debt profile,
- reducing funding reliance on international capital market.
In May 2010, the parliament approved the revised budget deficit of US$14.5 billion or 2.1% of GDP which allows for adequate subsidies due to rising commodity prices and lower tax revenue in line with the tax incentive program to various sectors
On the financing front, we continue to diversify our sources of financing requirement and up to September 2010, we have completed almost 90% of our funding requirement.
Public debt is generally balanced between domestic and external sources with continued declining proportion of external debt since 2004.
Executive Summary: Prudent Fiscal Management
With strong foundation of economic fundamental and budgetary achievement in 2009, we are confident
toward the fiscal targets for 2010.
Improving International Perception: Acknowledged by Rating Agencies
Resilient economy, which impressively navigates through the global crisis and with growing confidence in economic outlook, the Republic continued to receive good reviews, especially from Rating agencies
Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from BB+ to
BBB-with stable outlook.The first upgrade to reach investment grade in the last 13 years reflects enhanced political and social stability, sustainable economic growth , alleviated public debt burden as a result of prudent fiscal management, reinforced resilience to external shocks stemming from the foreign reserves accumulation and an improved capacity for external debt management and efforts made by the current administration to outline the framework to deal with structural issues such as infrastructure development.
Moody’s Investors Service (June 21, 2010): revised the outlook of Indonesia’s foreign and local-currency Ba2 sovereign debt ratings to positive from stable. The positive outlook broadly reflects the country's capacity for sustained strong growth, the overall stability and effectiveness of its fiscal and monetary policies, and expectations of further improvements in the government's financial and debt position.
S & P (March 12, 2010): upgraded Indonesia’s long-term foreign currency rating to BB from BB- with positive outlook which
indicates that Indonesia has big possibility to be upgraded within a year, even maybe faster. The main factor supporting this decision is steadily improving debt metrics and growing foreign currency reserves which reduced vulnerability to shock with continued cautious fiscal management.
Fitch Ratings (January 25, 2010): upgraded the Republic of Indonesia’ssovereign rating to‘BB+’from ‘BB’with stable outlook
The rating action reflects Indonesia’s relative resilience to the severe global financial stress test of 2008-2009 which has been underpinned by continued improvements in thecountry’spublic finances.
Improving International Perception: Significant Raise in Perception Indices
World Economic Forum– The Global Competitiveness Report 2010–2011 (September 15, 2010)reported that Indonesia posts
an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment and improved education indictors. Indonesia considered to successfully maintain a relatively healthy macroeconomic environment throughout the crisis. While most other countries saw their budget deficits surge, Indonesia kept its deficit undercontrol”
The IMD Competitive Center (May 19, 2010) reports a major improvement in Indonesia's global competitiveness, with
Indonesia moving up from 42nd to 35nd place among a total of 57 major nations surveyed worldwide. For Indonesia, the
improvement in 2010 has been achieved through significant gains in economic performance, followed by government efficiency and infrastructure improvement.
OECD (April 2, 2010): upgradedIndonesia’s Credit Risk Classification (CRC) from category 5 to 4. This upgrade was a timely
acknowledgement by the developed economies of the consistent economic improvement. This upgrade would significantly improve
Indonesia’s credit standing in front of the creditor countries especially the credit exports creditor countries which eventually would decrease the debt burden.
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
Source: Coordinating Ministry for Economic Affairs
Strong Growth Prospect Continues
GDP Growth
is forecasted to be at the upper limit of6.0%-6.3% projection
With more upbeat confidence to the economy, exports and investment are expected to keep climbing, providing additional boost to higher consumption in support of higher levels of economic growth.
Looking forward, steady improvement is predicted in global and domestic economic developments. Therefore in 2011, the forecasted rate of growth is 6.0%-6.5%. This growth will be driven by continued robust household consumption, improved external sector performance as the global economy charts further recovery and higher investment in tandem with mounting domestic and external demand.
2010 Forecast Main Factors Behind The Forecast
Source: Bank Indonesia.
Inflation
is estimated to be on the upper limit of target range of 5.0%
1%
Signs of future inflationary pressures until end of 2010 are noted, which mainly predicted from administered prices and volatile food seasonal uncertainties. However, BI is positive to contain the inflation level within the target range, and will keep a close watch on the rising inflationary pressure and make the necessary adjustments to monetary policy responses to ensure that inflation remains on track with the established targeting range at 5% 1% in 2010 and 2011.
Export
is expected to charthigher 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 in the economies of Indonesia’s major trading partners. The recovery will induce higher volume of international trade which will accelerate Indonesia’s export. 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 remain strong. 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.
Higher investment will also contribute to rising incomes, thus paving the way for stronger public purchasing power.
13
Robust and Stable Economy Continues to Chart Positive Growth
(*): Preliminary
Source: Ministry of Finance, BPS.
The Indonesian economy grew by 6.2% in Q2-2010amid persistent risks of global uncertainties, particularly in regard to the slowdown in China's economy and the outlook for US economic recovery.The major improvement was a result from increase in exports and investment, while private consumption remained strong.
The Indonesian economy maintained brisk growth throughout Q3-2010, driven mainly by household consumption and exports.
The buoyant level of household consumption has been fuelled by widespread availability of consumer financing, mounting consumer optimism and low import prices. Alongside this, export growth is driven mainly by strong demand from China and India and rising international commodity prices. With consumption and exports forging ahead, investment has begun to pick up, as indicated by increased imports of machinery and raw materials and rising levels of working capital credit.
Looking forward, steady improvement is predicted in global and domestic economic developments. In 2010, economic growth is projected in the range of 6.0%-6.3%. For 2011, the forecasted rate of growth is 6.0%-6.5%. This growth will be driven by continued robust household consumption, improved external sector performance as the global economy charts further recovery and higher investment in tandem with mounting domestic and external demand.
Optimistic on high growth prospects
Source: Bank Indonesia.
Sustainable Economic Growth
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
2006 2007 2008 2009 2010-Q2
5.5
6.3
6.0
4.5
6.2 % yoy
CPI inflation in September 2010 reached 0.44% (mtm) or 5.80% (yoy). Pressure mostly stemmed from the surge in volatile foods inflation from seasonal effect of recent festivities. Nevertheless, inflationary pressure reflected in core inflation held at a modest 4.02% (yoy), supported in part by the appreciating trend in the exchange rate. Similarly, inflationary pressure from administered prices was comparatively low at 5.60% (yoy), due to the absence of strategic decisions affecting government-set prices during September 2010.
Going forward, BI recognized of the risks that may fuel inflation up to 2011: • The escalating trend in demand, which is growing faster than supply.
• Anomalies in weather conditions may persist, with potential to disrupt production and distribution of staple needs. • The possibility of planned increases in administered prices.
BI is keeping a close watch on this potential inflationary pressure and is strengthening policy coordination with the Government at both the central and regional levels. BI will respond with the policy mix necessary to keep inflation on track with the established target at5% 1% in 2010 and 2011 and 4.5% + 1% in 2012
Inflation: Noted Pressure But Core Is Stable
Source: Bank Indonesia Inflation Inflation Expectation –Consensus Forecast
The monetary policy stance is directed towards maintaining consistently low inflation while making adequate provision for measures to strengthen economic recovery.
Monetary Policy Stance
BI Rate and Inter
In the Board of Governors' Meeting convened on 5 October 2010, Bank Indonesia decided to hold the BI Rate at 6.50%. The decision is based on a comprehensive evaluation of the performance and outlook for the Indonesian economy, which is showing overall improvement. BI has taken note of the rise inflationary pressure amid heavy inflows of foreign capital and considerable levels of excess liquidity. BI put the economic liquidity management as higher priority.
The current level of BI Rate is consistent with achievement of the inflation target and remains conducive in safeguarding financial stability and promoting bank intermediation for supply-side response to accelerated demand.
Source: Bank Indonesia.
5.5 6 6.5 7 7.5 8 8.5 9 9.5 10 10.5
Jun
-08
Jul
-08
Aug
-08
Se
p-08
Oc
t-08
Nov
-08
De
c-08
Jan
-09
Fe
b-09
Mar
-09
Apr
-09
M
ay
-09
Jun
-09
Jul
-09
Aug
-09
Se
p-09
Oc
t-09
Nov
-09
De
c-09
Jan
-10
Fe
b-10
Mar
-10
Apr
-10
M
ay
-10
Jun
-10
Jul
-10
Aug
-10
Se
p-10
BI RateInterbank O/N Rate %
Balance of Payments: Preliminary Estimates for Q3-2010
Balance of Payments
• Current account in Q3/2010 is estimated to post a surplus. However, the surplus will fall short of the Q2/2010 surplus primarily due to faster pace of import growth compared to export growth as a result of vigorous domestic economic activity, rupiah appreciation, and lower oil & gas prices. The downturn in the current account is projected to be covered by a significant surplus in the capital and financial account. The bulk of the surplus will come from portfolio investment in response to abundant global liquidity and attractive investment yield. In addition, the surplus will also be boosted by FDI inflows in line with sound macroeconomic outlook and relatively low labor cost.
• With those prospects, overall balance of payments in Q3/2010 is estimated to post a higher surplus than preceding quarter.
• Accordingly, international reserves at end of Q3/2010 (September) mounted to US$ 86.55 billion (equivalent to 6.5 months of imports and official external debt service payments).
Official BOP statistics for Q3-2010 will be released on November 2010.
0
10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000
-8,000 -6,000 -4,000 -2,000 0 2,000 4,000 6,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3* Q4* Q1* Q2* Q3*
2007 2008 2009 2010
Indonesia's BOP
Curren t Acc. Cap . & Fin . Acc Reserve Assets (RHS)
M
Million USD Million USD
Source: Bank Indonesia
Balance of Payments Q2
–
2010
The current account in Q2/2010 posted a surplus of about US$1.8 billion,
boosted by upbeat performance in non-oil/gas trade balance, the gas trade balance and the current transfers. The surplus was nevertheless down from the previous quarter (US$2.1 billion surplus) due to the increased deficit in the oil trade balance and the income account.
The capital and financial account in Q2/2010 recorded a surplus at US$3.3 billion. All major components of the capital and financial account,
encompassing direct investment, portfolio investment and other investment,
recorded surplus. Despite this, the overall capital and financial account surplus was down from the preceding quarter (US$4.3 billion surplus), mainly as a result of negative spillover effects from the debt crisis in Europe that have led to reduced inflows of portfolio investment.
Q1 Q2 Q3* Q4* Total Q1* Q2*
I. CURRENT ACCOUNT 126 2,508 2,480 2,157 3,602 10,746 2,068 1,834 A. Goods, net 22,916 6,884 8,365 8,488 11,395 35,133 8,418 8,985 1. Non-Oil & Gas, net 15,130 5,335 6,436 6,647 8,388 26,806 6,460 7,037 2. Oil & Gas, net 7,786 1,549 1,928 1,842 3,007 8,326 1,958 1,948
B. Services, net -12,998 -2,743 -3,310 -3,509 -4,546 -14,108 -3,595 -3,697
C. Income, net -15,155 -2,742 -3,776 -4,072 -4,551 -15,140 -3,922 -4,642
D. Current Transfers, net 5,364 1,109 1,201 1,248 1,303 4,861 1,168 1,188
II. CAPITAL & FINANCIAL ACCOUNT -1,832 1,593 -1,822 2,507 1,270 3,548 4,274 3,334
A. Capital Account 294 19 29 34 14 96 18 0
B. Financial Account -2,126 1,574 -1,851 2,474 1,255 3,453 4,256 3,334
1. Direct Investment 3,419 453 400 472 604 1,928 1,745 1,171
a. Abroad -5,900 -1,451 -1,047 -515 64 -2,949 -627 -1,328 b. in Indonesia 9,318 1,904 1,447 987 540 4,877 2,372 2,499
2. Portfolio Investment 1,764 1,950 1,893 2,972 3,521 10,336 6,159 1,142
a. Assets -1,294 133 362 -331 -307 -144 -409 -99 b. Liabilities 3,059 1,817 1,532 3,303 3,828 10,480 6,569 1,241
3. Other Investment -7,309 -829 -4,144 -970 -2,869 -8,812 -3,648 1,021
a. Assets -10,755 -307 -2,271 -6,325 -3,702 -12,605 -4,080 1,388 b. Liabilities 3,446 -522 -1,873 5,355 833 3,793 432 -367
III. TOTAL (I+II) -1,706 4,101 658 4,664 4,872 14,294 6,342 5,168
IV. NET ERRORS & OMISSIONS -239 -146 394 -1,118 -918 -1,788 279 253
V. OVERALL BALANCE (III+IV) -1,945 3,955 1,052 3,546 3,954 12,506 6,621 5,421
*) : provisional figures
2010
(million US$) Indonesia's Balance of Payments
ITEMS 2008 2009
Source: Bank Indonesia
Banking system stability held firm amid the onset of renewed credit expansion (data as of August 2010)
Main Banking Indicators
Source: Bank Indonesia * Preliminary figures, operational risk is calculated in August 2010 figures
Sound Financial Sector
Stability in the banking system remains firm alongside steady improvement in credit growth.
• Financial system stability up to August 2010 is well maintained, confirmed by Financial Stability Index (FSI) which remain unchanged at 1.84 well below the threshold (2.00) set as an early warning indicator. This indicate the robustness of the Indonesian financial system. By the end of 2010, we expect FSI to be ranged between 1.45 to 2.02 with a 1.74 baseline, owing to the positive macroeconomic outlook.
• Banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the well-maintained Capital Adequacy Ratio (16.3%, as of end of August 2010) and safe level of gross Non-Performing Loans at 3%, as of end of August 2010.
Sufficient CAR (%) Sound level of NPLs (%)
Source: Bank Indonesia.
20.5 19.3
16.2 17.4
19.3 19.1 19.2
17.8 17.4
16.5 16.3
-5.0 10.0 15.0 20.0 25.0
Dec-06 Dec-07 Dec-08 Dec-09 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 -0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
Dec-06 Dec-07 Dec-08 Dec-09 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10
gross NPL net NPL
22
Banking intermediation has strengthened further
• Banking Intermediation continues to improve. Loan extensions as of September 2010 recorded at Rp1.6 trillion. Hence, loan growth has reached 21.2% (yoy). Third party deposits increased, although not as rapidly, with a 14.30% (yoy) growth.
• Up to September 2010, working capital credit has expanded at a faster rate than consumption credit, and looking forward, credit growth will continue to be channelled into productive sectors. Therefore credit growth for overall 2010 is forecasted at 22%-24%, in line with the business plans prepared by banks. Key to the credit expansion is enhanced confidence on the economic prospect.
-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%
2002
2003
2004
2005
2006
2007
2008
2009
2010
Loan Growth (yoy)
W.Cap Inv Cons. Total
Loan Growth (yoy)
23
• The influence of such positive perceptions was, among others, illustrated by the upward trend in capital flows to all financial market instruments like BI certificates, stock, and government securities.
• Foreign holdings in SBI by end of September 2010 reached $7.2 billion, which is approximately 25% of total SBI, and in SUN reached $20.2 billion or around 29% of total SUN.
• The stock market continues to improve with the JSX composite price index exceeding 3,500 at the end of September 2010.
• The price of SUN has continued to increase in line with strong demand. Such conditions subsequently lowered the SUN yield to a range of 7.6% at the end of September 2010.
6, 76 2 5, 44 4 2, 17 9
608 565 752 947 672 1,39
8 1, 38 5 2, 23 3 2, 03 4 3, 58 7 2, 43 8 3, 70 8 4, 49 0 4, 88 3 4, 67 4 5, 33 2 6, 31 4 6, 89 0 9, 19 0 3, 96 6 4, 57 4 4, 67 2 6, 13 1 7, 20 2 10 ,9 18 11 ,6 54 11 ,2 85 9, 28 2 7, 45 9 7, 79 5 7, 74 5 6, 84 0 6, 74 3 7, 58 5 8, 56 9 8, 55
3 9,061
9, 13 9 9, 45 7 10 ,6 91 11 ,0 50 11 ,4 17 12 ,3 92 12 ,8
95 14,412
16
,3
57
15
,6
84 17,6
98
19
,0
03 19,792 20
,2 97 -5,000 10,000 15,000 20,000 25,000 30,000 Ju l-08 Au g-08 Se p-08 O ct -08 N ov -08 D ec -08 Jan -09 Fe b-09 Mar -09 Ap r-09 May -09 Ju n-09 Ju l-09 Au g-09 Se p-09 O ct -09 N ov -09 D ec -09 Jan -10 Fe b-10 Mar -10 Ap r-10 May -10 Ju n-10 Ju l-10 Au g-10 Se p-10 SUN SBI million USD 8,900 9,400 9,900 10,400 10,900 11,400 11,900 -8000 -6000 -4000 -2000 0 2000 4000 6000 A ug -08 Se p-08 O ct -08 N ov -08 D ec -08 Ja n-09 Fe b-09 Mar -09 A pr -09 May -09 Ju n-09 Ju l-09 A ug -09 Se p-09 O ct -09 N ov -09 D ec -09 Ja n-10 Fe b-10 Mar -10 A pr -10 May -10 Ju n-10 Ju l-10 A ug -10 Se p-10 Equity Government Bond
Central Bank Bill
IDR/USD
USD Milion IDR/USD
Portfolio Flows:
Government Securities (SUN) and BI Certificates (SBI) and Equity Foreign Holdings on
Government Securities (SUN) and BI Certificates (SBI)
• The surge of capital inflows is attributable to continued improvements in the investor’s sentiment regarding
Indonesia’s promising growth prospects.
Manageable Capital Flows
1000 1500 2000 2500 3000 3500 4000 4.0 9.0 14.0 19.0 24.0 Jan -06 Mar -06 May -06 Jul -06 Se p-06 N ov -06 Jan -07 Mar -07 May -07 Jul -07 Se p-07 N ov -07 Jan -08 Mar -08 M ay -08 Jul -08 Se p-08 N ov -08 Jan -09 Mar -09 May -09 Jul -09 Se p-09 N ov -09 Jan -10 Mar -10 May -10 Jul -10 Se p-10
Govt Bond Benchmark (%)
Jakarta Composite Index (RHS) 3,501
7.62 Portfolio Flows:
Government Securities (SUN) and BI Certificates (SBI) and Equity
24
• Stimulating intermediary function through macro and micro-prudential regulatory incentives. In order to balance growth of the banking sector and the economy as well as financial system stability, Bank Indonesia has and will enact several policy responses, which covers both macro and micro prudential regulatory incentives as follows:
A. Regulatory policy concerning Net Open Position
Given the large influx of investment in foreign exchange, Bank Indonesia has relaxed its regulatory stance with regards to net open position maintenance. In its new policy, Bank Indonesia will allow banks to offset foreign exchange exposures in their on-balance sheet with the exposures in the off-balance sheet. Hence the net exposures will be the ones used in the calculation of net open position limit which is 20% of bank’s capital. Prior to the easing, the limit was calculated separately for on and off balance sheet.
B. Regulatory policy concerning Minimum Holding Period for SBI and widening the Interbank Market Corridors
In order to deepen the financial market as well as lessen the volatility of foreign capital flow, BI has widen the interest rate corridor of the interbank market. The enacment of this policy is expected to deepen the interbank market as well as to be resulted in a more in tune market rate and aligned to BI rate.
Whilst the policy to introduce the minimum holding period is to lessen the volatility of foreign capital flows especially with respect to invested foreign portfolio in BI Sertificates (SBI).
Policy Response to Cope the Challenge in Financial Sector
25
D. Policy for Micro, Small, and Medium Enterprises (MSME)
Aside form regulatory policy, Bank Indonesia has also strive to make effort to push the intermediation function and financial deepening especially targeted for MSME. This policy is conducted through various program such as:
• linkage program with rural banks,
• establishing business data and information facilities for sectors with high potential, as well as financial education programs;
• Simplification of the Uniform Classification System on Asset Quality for MSME
• In cooperation with the Govt. Credit Guarantee Agency, and Several Commercial Banks, Setting up a credit guarantee scheme for MSME and KUR;
• Lowering of Risk Weights for CAR calculation for exposures on certain MSME loans that has been backed by insurance
C. Regulatory policy concerning Rupiah Statutory Reserve
Bank Indonesia decided to raise the primary statutory reserve requirement for rupiah funds to 8% and to introduce an LDR-based reserve requirement. This policy is intended to curb mounting inflationary pressure through management of excess banking liquidity. The new reserve requirement has been set in consideration of the present condition of banking liquidity, hence, does not diminish the capacity of banks to pursue credit expansion in line with existing bank business plans while upholding prudential banking principles. The LDR-based reserve requirement is established with a range that will promote the banking intermediation function while upholding prudential banking principles
Policy Response to Cope the Challenge in Financial Sector
State Budget 2010 and Revised Budget 2010
Budget 2010 Revised Budget 2010
949.6 992.4
742.7 743.3
205.4 247.2
1,047.7 1,126.1
725.2 781.5
340.1 366.2
385.1 415.3
106.5 143.9
i. Fuel 68.7 88.9
37.8 55.1
322.4 344.6
-98.0 -133.7
(1.6) (2.1)
98.0 133.7
107.9 133.9
-9.8 -0.1
ITEMS
A. Revenue and Grant
1. Tax
-Non-Departm ental / non Line Minis tries
II. International (net)
-Energy Subs idies
ii. Electricity
II. Transfer to Region
C. Surplus/(Deficit) Budget (A -B)
% GDP
D. Financing
I. Dom es tic
2. Non tax revenue
B. Expenditure
I. Central Government
-Departm ental / Line Minis tries
NO Budget Rev ised Budget
1 Growth 5,5% 5,8%
2 Inflation 5% 5,3%
3 Exc hange rates (/USD) 10.000 9.200
4 SBI 6,50% 6,5%
5 Oil Pric e (USD/Barrel) 65 80
6 Oil Lifting (mil.Barrel/Day 0,965 0,965
MACRO ASSUMPTIONS 2010
27 Source: Ministry of Finance
Budget Deficit / GDP
Public Finances is a fundamental strength of the Indonesian economy; most of Indonesian ratios are strong or
stronger than its peers; Fiscal Budget deficit has traditionally been limited and remained contained in 2009. Fiscal Stimulus did not impact much on fiscal deficit in 2009
Budget Deficit / GDP (%) Budget Deficit / GDP 2009* vs. Emerging Markets Countries
Source: Ministry of Finance
Financing Trend 2005-2010
Source: Ministry of Finance
Budget Deficit Financing
50% 50% 53% 53% 48% 53% 55%
50% 50% 47% 47% 52% 47% 45%
0% 25% 50% 75% 100%
2004 2005 2006 2007 2008 2009 Aug-10
Domestic Debt External Debt
Debt to GDP Ratio (% of GDP) Debt Composition
Debt Figure, 2004 - 2010
Source: Ministry of Finance Table of Debt to GDP Ratio
Notes: * = Preliminary ** = Very Preliminary
*** = Very Very Preliminary, GDP number based on Budget 2010 Assumption
[Outstanding as of Aug, 2010]
Notes:
* = Preliminary ** = Very Preliminary
*** = Very Very Preliminary, GDP Number Based on Revised Budget 2010 Assumption Notes:^ = Based on debt outstanding as of Aug 2010 57.5%
47.3%
39.0%
35.2%
33.1%
28.3% 27.0%
0% 10% 20% 30% 40% 50% 60%
2004 2005 2006 2007 2008 2009 2010
2004 2005 2006 2007 2008* 2009** Aug 10***
GDP 2,295,826.20 2,774,281.00 3,339,480.00 3,949,321.40 4,954,028.90 5,613,441.74 6,253,789.50
Debt Outstanding (billion IDR) 1,299,504.02 1,313,294.73 1,302,158.97 1,389,415.00 1,636,740.72 1,590,656.07 1,654,193.71 - Domestic Debt (Securities) 653,032.15 658,670.86 693,117.95 737,125.54 783,855.10 836,308.91 905,619.60 - Foreign Debt (Loan+Securities) 646,471.87 654,623.87 609,041.02 652,289.46 852,885.62 754,347.16 748,574.11
Debt to GDP Ratio 56.60% 47.34% 38.99% 35.18% 33.04% 28.34% 26.45%
- Domestic Debt to GDP Ratio 28.44% 23.74% 20.76% 18.66% 15.82% 14.90% 14.48% - Foreign Debt to GDP Ratio 28.16% 23.60% 18.24% 16.52% 17.22% 13.44% 11.97%
End of Year
Source: Ministry of Finance, Bloomberg. Note: EIU estimates used for exchange rates.
Maturity profile has been improving over time towards a more balanced structure.
External bonds are longer dated, with the shortest ones coming due in 2014
Healthier Maturity Profile of Government Debt
Tradable Government Securities –Maturity Profile (As of 30 September 2010)
36% 36% 42% 41% 45% 47% 48% 54% 59% 66% 75% 72% 44% 36% 37% 34% 34% 34% 34% 30% 24% 21% 17% 25% 35% 35% 28% 27% 24% 25% 19% 19% 17% 16% 13% 8% 3% 20% 21% 0 15 30 45 60 75 D e c -0 4 D e c -0 5 D e c -0 6 D e c -0 7 D e c -0 8 M a r-0 9 D e c -0 9 J a n -1 0 F e b -1 0 J u n -1 0 J u l-1 0 J u l-1 0 S e p -1 0
Domestic Banks Domestic Non-Banks Foreign Holders (US$ billion)
Increasing proportion of non-bank domestic holders of government securities reflects development in the market base
Source: Ministry of Finance. As of September 28, 2010. Assume exchange rate of Rp 9,200 / US$.
>5 years 69%
0 - 1 year
10% 0 - 2 years
3%
2 - 5 years 18%
Yearly issuance schedule publicly available
Established primary dealership infrastructure
Benchmark series
Active communication with market participants
Variety of domestic securities available
- T-Bills, fixed rate, floating rate, variable rate, zero coupon, retail bonds and Sukuk
Holders of Tradable Government Securities
Holders of Tradable Domestic Gov’tSecurities Foreign Holdings by Maturity, September 28, 2010
Development in Domestic Market
33
Macroeconomic Indicator Projection 2011
Macro Economic Policy Target 2011:
• Unemployment: 7,0%• Poverty: 11,5% - 12,5% • Economic growth: 6,4%
• Minimum investment requirement IDR 2.243,8 Trillion • 1% economic growth will absorb 400 thousand work force
Indicators
2010
2011
Budget
Revised
Budget
Proposed
Economic Growth (%)
5,5
5,8
6,4
Inflation (%)
5,0
5,3
5,3
Exchange Rate (IDR/US$)
10.000
9.200
9.250
Interest Rate (3-Month) (%)
6,5
6,5
6,5
ICP (US$/barrel)
65
80
80
Oil Lifting (MBCD)
0,965
0,965
0,970
