ProdukHukum BankIndonesia
Sail to the Port
to Tie-up in the Land
of Hope
It’s ime to prepare the anchor that had been lited from
the sea, back to be grounded to the sea. Keep your eyes
open to see the land that ready to greet you. Millions of
hope awaits you behind the friendliness and the dynamic
of its ciizen life. It doesn’t mean the journey has ended;
it’s just a ime to put your feet up before return to cross
the sea bravely.
i
CHAPTER
VI
ECONOMIC OUTLOOK AND BANK
INDONESIA’S POLICY DIRECTION
Economic Outlook and Bank
Indonesia’s Policy Direcion
Amid severe pressures stemming from the global
economic crisis, a number of posiive achievements in
Indonesian economy during 2009 boosted opimism
over the sustainability of an ongoing economic
recovery. The posiive economic performances
include the recovery of inancial system stability, the
strengthening of rupiah, the low inlaion pressure,
and the fairly high economic growth. Opimism
on an improvement in economic prospects was
strengthened further by a more conducive global
economic outlook.
Despite increasing opimism, Indonesia’s future
economic development sill has to cope with
numerous challenges that could potenially hamper
the pace of economic recovery. From the external
side, the challenge is primarily related to the impacts
of the strategy to unwind the measures adopted
by developed countries in response to global crisis,
which include monetary easing and iscal expansion.
External challenges also include the polarizing trend
of global trade and the large imbalances in global
economic performance. From the domesic side,
challenges are related to several issues that could
disrupt the efeciveness of monetary policy, such
as excess bank liquidity, the dominance of shortterm inlows in the structure of capital inlows, the
potenial asset price bubble, a shallow inancial
market and numerous structural problems in the real
sector.
168
With a solid foundaion built on the strength of
robust economic performance of the previous
year and in line with improving global economic
projecions, as well as support from an array
of policies that will be taken to address various
challenges in the economy, the Indonesian
economic prospect is expected to be beter. Strong
macroeconomic performance is also supported by
preserving price and inancial system stability, which
represent the main foundaions of overall economic
resilience. In 2010, the economy will regain its
momentum with GDP growth forecasted in the range
of 5.5% - 6.0% (yoy). Despite expansive economic
growth, inlaionary pressure is expected to remain
under control within the 2010 inlaion target range
of 5% ± 1% (yoy). Meanwhile, the global economic
recovery will bring posiive impact on the balance
of payments in 2010. The current account will again
run a surplus, primarily driven by strong export
performance for goods and services. The capital
and inancial account will also record a surplus,
accompanied by improvement in the structure of
capital inlows. The foreign direct investment will
surge in line with greater opimism regarding future
economic prospects. The short-term inlows will also
persist, however, on a more limited scale compared
to previous periods. Against this propiious backdrop,
the overall balance of payments in 2010 is projected
to record a surplus of USD12.5 billion, with foreign
exchange reserves at the end of 2010 expected to
reach USD78.5 billion; equivalent to 6.4 months of
imports and foreign debt repayments. In accordance
with the posiive forecast for the balance of
payments, the exchange rate in 2010 is expected to
remain stable with a tendency to appreciate slightly
compared to 2009.
Looking ahead over a longer horizon, economic
projecions will improve in line with the increase
in capital accumulaion as well as improvements
in producivity and eiciency. Increased capital
accumulaion will simultaneously boost economic
capacity and generates income. Meanwhile,
increased economic producivity, relected by TFP,
will ulimately catalyze higher economic growth in
the long run. Support from the sources of economic
growth will enable eforts to expedite economic
growth, followed by managed inlaionary pressures
and preserved inancial system stability. Under these
circumstances, economic growth is projected to
expand in the range of 6.5% - 7.5% (yoy) by 2014,
bolstered by an inlaion rate maintained within the
medium-term inlaion target corridor of 4% + 1%
(yoy).
To address the assortment of challenges that could
potenially impede the economic recovery, various
policies are required to support the achievement of
this economic outlook. In terms of government policy,
stronger economic performance will be diicult to
accomplish without solving the structural issues
that have not been handled opimally. A number of
structural issues, such as infrastructures problems,
the unfavorable business and investment climate,
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
169
and the inadequate quality of human resources, have
received special government atenion as set out in
the Medium-Term Development Plan (RPJMN) 20102014. In the short term, various policy measures
are expected to overcome the botlenecking that
had undermined investment acivity. In the longer
term, various breakthroughs in the real sector are
expected to increase economic compeiiveness
as a whole, paricularly by amelioraing human
170
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
capital. Concomitantly, Bank Indonesia policies are
designed to maintain macroeconomic and inancial
system stability, as well as encourage banking
intermediaion to shore up sustainable economic
growth. Coordinaion between the Government
and Bank Indonesia will coninue to improve by
opimizing the various forums that already exist, both
in central and rural areas, such as, TPI/TPID.
Economic Prospects
g
6.1
Assumpions
Indonesian economic projecions are based upon a
number of assumpions, both externally and domesically.
Externally, assumpions relate to forecasts of several
global economic variables that afect Indonesia, for
example global trade volume as well as oil/gas and nonoil/gas prices. Domesically, assumpions relate to the
iscal deicit as well as various policies adopted in terms of
amelioraing the investment climate.
Global Economic Assumpions
Global Economic Growth and Trade Volume
Signs of a global economic recovery began to appear upon
entering the second half of 2009. The downturn in global
economic growth as a result of the crisis ended in the irst
quarter of 2009 and, subsequently the global economy is
projected to grow posiively in 2010. These projecions are
supported by a variety of factors, including a recovery in
the global inancial sector coupled with macroeconomic
policy that is expected to remain accommodaive unil the
recovery process is suiciently stable.
Against this backdrop, growth in developed countries,
namely the US, Europe and Japan in 2010, is projected
to reach about 2.7%, 1.0% and 1.7%112 respecively.
In the meanime, countries in Asia are expected to be
the main engine of the global economic recovery led
112 World Economic Outlook Update, IMF, January 2010
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
171
by China and India. In 2010, China’s economic growth
is projected to achieve 10.0% and India 7.7%. The
rapid pace of economic recovery in China and India is
expected to simulate imports to these countries, and
simultaneously will increase exports from other Asian
countries. This improvement in external performance
will be accompanied by a recovery in consumpion that
could potenially accelerate the Asian economic recovery
further, outpacing that of other regions.
In the medium term, economic growth in developed
countries is expected to return to levels before the global
crisis. The US economy is esimated to grow toward the
range of 2.1%, while European countries is expected
to grow by 2.1% in 2014, approaching levels in 2007113.
Meanwhile, developing countries especially China
and India, that have so far been able to maintain solid
economic growth, are projected to grow at 9.5% and 8.1%
respecively in 2014.
Looking at the posiive correlaion between global
economic growth and trade volume, as relected by the
historical data, Bank Indonesia predicts that the volume
of global trade will expand by about 8.0% (yoy) in 2010.
Subsequently, the world trade volume will coninue to
increase gradually to around 9.2% in 2014 (Chart 6.1).
per barrel. This concurs with IMF114 projecions that the
average global oil price in 2010 will increase by 22.6%
to a level of USD76.0 per barrel. In addiion to a surge
in demand, the dynamic of the global oil price is oten
inluenced by speculaive acivity on the global commodity
market.
Looking ahead, the oil price is expected to follow an
upward trend in line with stronger global economic
growth. However, the anicipated increase in oil supply
capacity in the following periods is expected to rein in
any exorbitant hikes in the global oil price. The Energy
Informaion Administraion (EIA) esimates the global oil
price using three scenarios over a longer horizon (2009 to
2030), namely high prices, the reference price (baseline)
and low prices115. A high oil price trajectory relects a
global oil market beset with various constraints, including
poliical issues, producion quotas and naionalizaion
issues, that drive the price towards USD132.8 per barrel
in 2014. A low oil price trajectory, that is in the range
of USD52.7 per barrel, describing a global oil market
supported by addiional producion of non-OPEC oil and
greater private paricipaion in developing oil resources.
Notwithstanding, the baseline global oil price in 2014 is
projected to reach USD90.9 per barrel (Chart 6.2). Based
on these informaions, Bank Indonesia predicts that the oil
price will increase to nearly USD100 per barrel by 2014.
Global Commodity Prices
In accordance with the global economic recovery, the
downward trend in commodity prices is expected to cease
in 2010. The price of Minas crude oil in 2010 is expected
to coninue to rise and reach a level of around USD80
114 World Economic Outlook Update, IMF, January 2010
115 Annual Energy Outlook, December 2009, EIA
113 World Economic Outlook, IMF, October 2009
percent
Meanwhile, non-oil commodity prices in 2010 are also
esimated to rise in line with stronger global demand
and higher oil prices. The industrial sector expansion
in the majority of all countries will boost demand for
percent
8
15
10
7
140
6
120
5
5
USD/barrel
160
132.8
100
4
3
0
-5
2
60
1
40
52.7
World Trade Volume
World GDP Growth (rhs)
Source: WEO update January 2010, WEO October 2009, Bank Indonesia Projecion
Chart 6.1 World GDP Growth and Trade Volume
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
Reference Price
Highest Price
Lowest Price
Source: Annual Energy Outlook, December 2009, EIA
Chart 6.2 World Oil Price Forecast
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
0
1982
-2
20
1980
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
-1
172
90.9
0
- 10
- 15
80
commodiies, paricularly raw materials such as coal,
crude palm oil (CPO), nickel and other minerals, which in
turn will drive up commodity prices. In addiion to raw
materials, food commodity prices are also esimated
to rise. However, future inlaionary pressures on food
commodity prices is expected to be moderate considering
that the elasicity of demand of such produce is relaively
insensiive to the business cycle, as well as the forecast
of good global crop in the short-term. However, mediumterm inlaionary pressures on food commodity prices
will remain due to the possibility of adverse weather
condiions that could undermine global food stock amid
rising global demand. Based on such condiions, Bank
Indonesia predicts non-oil commodity prices to re-enter
an increasing phase in 2010 by rising about 13% (yoy).
Non-oil price pressures are expected to ease slightly and
tend to be more stable in the long run.
Global Inlaion
The expected recovery in global demand, which in turn
simulate the increase in prices of various commodiies,
will ulimately trigger global inlaionary pressures. In
2010, inlaion in developed countries are forecast to
reach 1.3% (yoy), from around 0% in 2009116. Despite the
support of lower wage trends in developed countries,
soaring commodity prices, especially oil, will push up
the rate of inlaion. In developing countries, inlaion is
projected to reach about 6.2% (yoy) in 2010 from 5.2%
in 2009. The surge of inlaion in developing countries
is primarily triggered by limited economic capacity and
a surge in capital inlows. In the medium term, inlaion
in developed countries is esimated to gradually return
to the range recorded prior to the global crisis. In the
US, inlaionary pressures are expected to steadily reach
around 2.0% in 2014. Meanwhile, inlaion is projected to
decline in developing countries to roughly 4.0% by 2014117.
remain accommodaive to support economic recovery
process. In this context, the global interest rate in the
short term is esimated to remain low. A ighter monetary
policy stance is expected to emerge in the middle of
2010 in line with projecions of a more stable economic
recovery in many countries.
Global Foreign Direct Investment (FDI)
In line with the global economic recovery, survey
results indicate that short-term global FDI lows are
sill experiencing the negaive impacts of the crisis119.
However, global FDI lows will gradually recover and grow
posiively in 2011 in accordance with improvements in the
domesic economy, which is the target of global FDI, and
the increasing in global investor interest to reinvest capital
in a number of countries.
For Indonesia, an increasingly conducive domesic
investment climate and infrastructural improvements
will atract global FDI. This is conirmed by survey results
in which Indonesia is ranked of 9th out of the 15 most
desirable regions for foreign investors to invest their
capital (Chart 6.3).120 Indonesia’s appeal includes growth
and size of market, access to natural resources and
inexpensive labor costs (Chart 6.4).
Global FDI inlows as an alternaive form of investment
inancing will enhance capital accumulaion. Furthermore,
global FDI is also expected to pave the way for technology
and innovaion that will, in turn, increase economic
producivity and eiciency.
119 World Investment Prospects 2009 – 2011, UNCTAD.
120 Ibid
percent of responses
The expected global inlaionary pressures encourages
central banks in various countries to begin considering a
ighter monetary policy stance in the following periods.
However, high uncertainty coninues to prevail and the
economic recovery process is not yet well sustained
provide a challenge for policymakers around the world118.
In the short term, the priority for policymakers will sill
aimed at maintaining the inancial system stability while
60
50
40
30
20
10
France
Poland
Mexico
Vietnam
Canada
Indonesia
Australia
Germany
UK
India
Brazil
Russian
Federaion
116 World Economic Outlook Update, IMF, January 2010
117 World Economic Outlook, IMF, October 2009
118 More details are available in Chapter 2 - Global Economic Recovery
and Future Challenges
USA
China
0
Source: UNCTAD
Chart 6.3 The Most Atracive Economies
for The Locaion of FDI 2009-2011
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
173
percent
Growth of Market
2.0
20%
1.5
Size of Local Market
Forecasts
16%
1.0
Access to Natural Resources
15%
Cheap Labour
0.5
13%
Access to Internaional/Regional market
Presence of Suppliers and Partners
Availabilty of skilled Labor and Talents
0.0
10%
-0.5
10%
-1.0
-1.5
7%
Follow Your Compeitors
-2.0
5%
-2.5
Stable and business-Friendly
environment
3%
0%
5%
-3.0
10%
15%
20%
25%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Percent of responses
Source: UNCTAD (processed)
Chart 6.4 Factor favouring Investment
Domesic Economic Assumpions
Fiscal Policy
In line with expectaions of an economic recovery in 2010,
the State Budget (APBN) 2010 will support eforts to boost
the naional economic recovery while maintaining the
sustainability of improvement programs and protecing
public welfare. Expectaions of an economic recovery
are relected in the assumpion used for the 2010 State
Budget. The Government assumes that the economy
will grow by 5.5%, surpassing that in 2009 at 4.5%.
Furthermore, inlaion in 2010 is assumed at a level of
5% and the average interest rate of 3-month SBI is 6.5%.
Externally, the global crude oil price is projected to reach
USD65 per barrel.
The assumpion of stronger economic expansion in 2010
will improve the structure of the Budget compared to
condiions in 2009. The improved Budget will enable
the Government to provide a variety of simulus to
the economy, both in terms of revenues and spending.
The Government will coninue several iscal incenives
introduced during 2009 to catalyze industrial and business
revitalizaion. The iscal incenives will be provided in the
form of corporate income tax reducions, the provision of
a corporate income tax facility for unlisted companies and
government-borne tax (DTP) policy.
Regarding spending, the Government will roll out a variety
of programs designed to simulate economic acivity. The
programs include the coninuaion of welfare programs
such as the Naional Community Empowerment Program
(PNPM), School Operaional Assistance, Public Health
Insurance, Rice for the Poor Household (Raskin) and
174
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
Source: Financial Note and State Budget 2010, Ministry of Finance
Chart 6.5 Realizaion and Forecasts of Fiscal Deicit
the Family Hope Program. In addiion, the Government
will also coninue the infrastructures development and
bureaucracy reforms, increase the military budget,
maintain educaion spending at a minimum of 20% of
Naional spending, as well as maintaining the real income
of civil servants and pensions. Real income is maintained
through a 5% increase in the basic salaries and pensions
of civil servants as well as the provision of a 13th-month
salary.
With the macroeconomic assumpions set up above as
well as the various programs planned on the revenue and
spending sites, the iscal deicit for 2010 is esimated to
be around Rp98 trillion, or 1.6% of GDP (Table 6.1). The
deicit will be funded by debt and non-debt inancing.
Debt inancing includes the issuance of net SBN, loans to
domesic banks, and net repayments on foreign loans.
Meanwhile, the non-debt inancing is primarily sourced
from the use of government deposits held at Bank
Indonesia.
In the medium term, the iscal deicit will decline gradually
to 1.2% of GDP by 2014 (Chart 6.5). This is based on a
number of external assumpions such moderate global
economic growth, relaively stable crude oil prices in the
range of USD70-85 per barrel, rising inlaion and interest
rates in US, and relaively stable inlaion in trading
partner countries.121 In addiion, domesic economic
condiions are also assumed to be conducive supported
by ongoing iscal consolidaion under a framework of
maintaining iscal sustainability, raising absorpion of
121 Based on the Medium-Term Naional Budget Framework published
in the Financial Notes and Naional Budget 2010
Table 6.1 State Budget 2010
2010
State Budget
2010 (trillions of
rupiah)
% of GDP
949.7
15.9
742.7
12.4
715.5
12.0
351.0
5.9
1. Oil and Gas
47.0
0.8
2. Non-Oil and Gas
303.9
5.1
A. Total Revenues and Grants
I. Tax Revenues
1. Domesic Taxes
a. Income Tax (PPh)
b. Value Added Tax / Value Added Tax for Luxury Goods (PPN/PPnBM)
269.5
4.5
c. Land and Building Tax (PBB)
26.5
0.4
d. Duies on Land and Building Transfer
7.4
0.1
e. Excise Duies
57.3
1.0
3.9
0.1
27.2
0.5
f. Other Taxes
2. Internaional Trade Taxes
a. Import Duies
19.6
0.3
b. Export Tax
7.6
0.1
205.4
3.4
132.0
2.2
II. Non-Tax Revenues (PNBP)
1. Natural Resources Revenues
a. Oil and Gas
120.5
2.0
b. Non-Oil and Gas
11.5
0.2
2. Proit Transfer from SOE's
24.0
0.4
3. Bank Indonesia Surplus
9.5
0.2
4. Other Non-Tax Revenues
39.9
0.7
1.5
0.0
III. Grants
B. Government Expenditures
1.047.6
17.5
I. Central Government Expenditures
725.2
12.1
i.e. Subsidies:
157.8
2.6
68.7
1.1
b. Non-Fuel Subsidy
89.1
1.5
II. Regional Expenditures
322.4
5.4
a. Fuel Subsidy
1. Balancing Funds
306.0
5.1
a. Revenue Sharing
81.4
1.4
b. General Allocaion Funds
203.5
3.4
c. Special Allocaion Funds
21.1
0.4
16.4
0.3
C. Primary Balance
2. Special Autonomy and Equalizaion Funds
17.6
0.3
Surplus/Deicit Budget
-98.0
-1.6
D. Financing
98.0
1.6
I. Domesic Financing
107.9
1.8
1. Domesic Banks
7.1
0.1
2. Non-Domesic Banks
i.e Government Bonds, net
II. Foreign Financing
100.8
1.7
104.4
1.7
-9.9
-0.2
Source : State Budget 2010, Ministry of Finance
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
175
Table 6.2 Forecast of Main Economic Indicators 2010
Components
Gross Domesic Product
Unit
2009
2010*
%y-o-y
4.5
5.5 - 6.0
Private Consumpion
%y-o-y
4.9
4.5 - 5.0
Government Consumpion
%y-o-y
15.7
5.9 - 6.9
Gross Fixed Capital Formaion
%y-o-y
3.3
8.8 - 9.3
Export of Goods and Services
%y-o-y
-9.7
10.2 - 11.0
%y-o-y
-15.0
12.5 - 13.5
%y-o-y
2.78
5.0 ± 1.0
Import of Goods and Services
CPI Inlaion**
Balance of Payment
millions of USD
12,506
12,495
Current Account
millions of USD
10,582
4,996
Capital and Financial Account
Internaional Reserve Posiion
millions of USD
3,673
7,500
millions of USD
66,105
78,464
Source: Staisics Indonesia
* Bank Indonesia’s Projecion
**End of period
the Budget Implementaion Entry List (DIPA), declining
raio of debt to GDP and increasing in infrastructures
development.
Real Sector Policy
Improved economic performance will be diicult to
achieve without solving a number of structural issues that
have not been opimally handled to date. These structural
constraints received special Government atenion as
sipulated in the 2010-2014 RPJMN. To this end, economic
development for the next 5 (ive) years will focus on 6
(six) direcions, namely infrastructures development, food
security, energy security, SME development, revitalizaion
of industry and services, and transportaion development.
These six direcions of development are outlined in a
variety of programs and acion plans with their respecive
schedules and implementaion deadlines.122
The various programs and acion plans menioned, if
implemented well, will signiicantly contribute to the
economic development process in future. In the short
term, these measures are expected to overcome the
various botlenecks that are hampering investment
aciviies. In the longer term, many breakthroughs in the
real sector are projected to boost economic producivity
and compeiiveness as a whole. In an era where the
dynamics of the domesic economy are inseparable
from the global economy, improving domesic economic
122 Quoted from minutes of the RPJMN Meeing 2010-2014, December
2009 (source: Indonesian Ministry for Economic Coordinaion).
176
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
compeiiveness is pivotal in order to ensure that
Indonesia can reap the beneits of increasing integraion
between the domesic and global economies. At the
regional level, increasing economic compeiiveness
is required to face the era of the ASEAN Economic
Community (AEC) in 2015 (Box 6.1: Preparaions for AEC).
Regarding the issue of increasing human capital, the
Government is expected to opimize its role in providing
fundamental aspects, such as broadening access to
educaion and health services, in paricular for the most
needed community.
g
Economic Prospects in 2010
Indonesian economy in 2010 is predicted to return to a
phase of rising economic growth. The indicaions that
the global recovery is proceeding sooner than previously
expected have boosted opimism over Indonesian
economic outlook. Such opimism is also supported by
domesic economic resilience that endured the efects of
the global crisis. The increased opimism over Indonesian
economic outlook is conirmed by the raised in Indonesia’s
raing by internaional raing agencies in early 2010.123
Economic growth is projected to reach 5.5% - 6.0% (yoy) in
2010. From a demand side, improved export performance
123 Internaional raing agency Fitch on 25th January 2010 raised
Indonesia’s sovereign raing to BB+ from BB with a stable outlook.
Also, internaional raing agency Standard and Poor’s (S&P) in March
2010 raised Indonesia’s long-term foreign exchange raing to BB
from BB- with a posiive outlook.
price adjustments, will be some factors that inluence the
domesic price performance. Against these backdrops,
inlaionary pressure is expected to remain under
control, within the 2010 target inlaion range of 5% ±
1% (yoy), amid growing economic acivity. Furthermore,
improvements in macroeconomic performance will
be supported by inancial system stability, which has
become the foundaion of economic resilience as a
whole. A solid inancial system will also enhance the
intermediaion funcion of inancial insituions, enabling
them to eiciently mobilize funds. The enhancing banking
intermediaion is relected in a projected 17-20% increase
in bank credit in 2010.
and increased investment acivity will drive expansive
economic growth. This is in line with stronger sectoral
performance, especially in the main sectors contribuing
to GDP. Signiicant improvements are predicted to take
place in the manufacturing sector, which its performance
over the last ive years is in a downward trend, and further
exacerbated by the onset of the global crisis in the fourth
quarter of 2008. Important indicaions that support this
improving trend for the manufacturing sector include
increasing capacity uilizaion, expanding imports of
raw materials and higher electricity consumpion in the
corporate and industrial sectors. However, a number of
challenges remain, in paricular those related to structural
problems, such as infrastructure, less contestable market
structure that undermines compeiiveness, and so forth.
The challenges faced by the manufacturing sector in 2010
will be magnify with the implementaion of the ASEANChina Free Trade Agreement (AC-FTA) in early 2010.
Economic Growth Outlook
Aggregate Demand Outlook
From a demand side, economic growth in 2010 (Table 6.3)
will primarily be driven on the back of strong exports and
a surge in investment acivity.
The ongoing of global economic recovery has posiive
impact on the forecast of Indonesia’s balance of payments
(BoP) in 2010. The current account will again record a
surplus on the back of increased exports of goods and
services. Regarding the inancial and capital account,
the deleveraging process that expected to abate and the
global monetary that expected to remain accomodaive,
will spur short-term inlows in the form of porfolio,
although on a more limited scale compared to previous
periods. Consequently, BoP is projected to run a USD12.5
billion surplus in 2010, with foreign exchange reserves
amouning to USD78.5 billion, equivalent to 6.4 months
of imports and foreign debt repayments. Accordingly, the
exchange rate in 2010 is expected to remain stable with a
slight tendency to appreciate compared to 2009.
The ongoing global economic recovery will enhance
exports performance in 2010 with the growth projected in
the range of 10.2% -11.0%. The expansion of Indonesia’s
exports will be supported by exports of primary
commodiies such as palm oil, agricultural produce as well
as mining products such as coal and copper. Consequently,
Indonesian exports are projected to experience a fairly
rapid recovery buoyed by stronger demand in trading
partner countries because of the raw materials’s role in
the iniial phase of the industrial producion process.
Meanwhile, opimism over economic recovery is expected
to encourage investment to grow in the range of 8.8%
- 9.3% in 2010. This is backed up by several indicators
such as increasing material imports to various sectors
as well as industrial electricity consumpion. Business
Exchange rate stability coupled with the assumpion that
the Government will not impose strategic administraive
Table 6.3 Economic Growth Outlook by Expenditure
percent yoy, price 2000
Components
Gross Domesic Product
Household Consumpion
2004
2005
2006
2007
2008
2009
2010*
5.0
5.7
5.5
6.3
6.0
4.5
5.5 - 6.0
5.0
4.0
3.2
5.0
5.3
4.9
4.5 - 5.0
Government Consumpion
4.0
6.6
9.6
3.9
10.4
15.7
5.9 - 6.9
Gross Fixed Capital Formaion
14.7
10.9
2.6
9.3
11.9
3.3
8.8 - 9.3
Export of Goods and Services
13.5
16.6
9.4
8.5
9.5
-9.7
10.2 - 11.0
Import of Goods and Services
26.7
17.8
8.6
9.1
10.0
-15.0
12.5 - 13.5
Source: Staisics Indonesia
*Bank Indonesia’s Projecion
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
177
Table 6.4 Economic Growth Outlook by Industry
percent yoy, Price 2000
Sector
Gross Domesic Product
2004
2005
2006
2007
2008
2009
2010*
5.0
5.7
5.5
6.3
6.0
4.5
5.5 - 6.0
Agriculture
2.8
2.7
3.4
3.5
4.8
4.1
4.1 - 4.4
Mining and Quarrying
-4.5
3.2
1.7
1.9
0.7
4.4
4.2 - 4.4
Manufacturing
6.4
4.6
4.6
4.7
3.7
2.1
4.1 - 4.4
Electricity, Gas and Water Supply
5.3
6.3
5.8
10.3
10.9
13.8
13.6 - 14.2
Construcion
7.5
7.5
8.3
8.5
7.5
7.1
8.1 - 8.5
Trade, Hotels and Restaurant
5.7
8.3
6.4
8.9
6.9
1.1
5.1 - 5.5
Transport and Communicaion
13.4
12.8
14.2
14.0
16.6
15.5
12.6 - 14.3
Finance, Real Estate and Business Services
7.7
6.7
5.5
8.0
8.2
5.0
4.9 - 5.3
Services
5.4
5.2
6.2
6.4
6.2
6.4
4.9 - 5.2
Source: Staisics Indonesia
*Bank Indonesia’s Projecion
investment such as machinery and transportaion
equipment is projected to record high growth in 2010,
for which one of the key drivers is more afordable credit
due to declining interest rates. Indicaions of improved
investment performance has been conirmed by the
increasing in producion capacity uilizaion by the
industrial sector. Furthermore, construcion investment in
2010 is forecasted to also expand in line with the ongoing
of government simulus for infrastructure projects and
rampant property development. Indicaions of increased
construcion investment are relected in higher cement
consumpion and soaring stock prices for companies
engaged in the infrastructure sector.
Household consumpion is expected to remain strong to
support domesic economic acivity. This is supported
by sustained level of consumer conidence measured by
the Consumer Conidence Index from Bank Indonesia’s
Consumer Survey. Other factors that bolster strong
household consumpion include a rise in income driven by,
among others, improved export performance. The nonfood consumpion such as retail goods and motor vehicles,
is projected to strengthen. This is supported by the
Retail Sales Index that shows an upswing in sales of food,
clothing, appliances and others. Therefore, household
consumpion in 2010 is esimated to grow in the range of
4.5% - 5.0%.
Government consumpion is expected to grow slower
at around 5.9% - 6.9% in 2010, atributable to a lower
adjustment of basic salary of civil servants in 2010
compared to previous years. In addiion, limited
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CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
government consumpion is also related with the balanced
distribuion of funds to local regions that will not increase
signiicantly.
Demand for imported goods is projected to rise to
bring imports to grow at around 12.5% - 13.5% in 2010.
The expansion in imports will be driven by stronger
performance in export, beter purchasing power as well as
stronger investment acivity, among others.
Aggregate Supply Outlook
The global economic recovery process will trigger
opimism in domesic economic acivity, which will further
encourage economic sectors in Indonesia towards a phase
of increasing growth (Table 6.4).
In 2010, industrial sector performance is projected to
improve in line with the domesic and global economic
recovery. The industrial sector is predicted to grow
by 4.1% - 4.4% in 2010 supported by a variety of
breakthroughs in real sector policy, among others, the
Government’s plan to provide incenives for raw material
suppliers of domesic industry. The incenive package
is expected to atract foreign investors to Indonesia,
paricularly in terms of developing naional downstream
industries. In addiion, the Government also plans to
revitalize several industrial sectors such as the cement
industry, ferilizer, sugar and CPO. This revitalizaion
plan is intended to anicipate demand for products from
these industries. In 2010, the industrial sector will face
challenges stemming from the implementaion of AC-FTA.
Products from ASEAN countries and China will become
strong compeitors to the domesic market, especially
the iron-steel industry, petrochemicals, yarns and fabrics,
horiculture, food and beverages, footwear, electronics,
cables, syntheic ibers, and toys. In anicipaion of a
less favorable climate post-AC-FTA, the Government
will coninue to promote measures to enhance the
compeiiveness of naional industries through policies
that are essenially designed to overcome botlenecks
(obstrucions) in the industrial sector. However, in the
short term there is a discourse on the Government to use
the non-tarif policy to protect naional industries. Such
policies include regulaions to comply to the Indonesian
Naional Standards (INS) for products available in
Indonesia, the use of the halal label as well as labels in
the Indonesian language, ighter controls on imports of
manufacturing products at six ports, the harmonizaion on
tarif to ensure that customs duies on imports of inished
goods are greater than the raw materials, especially for
products included on the High Sensiive List (HSL) such as
sugar, rice, corn and soybean. In addiion, the government
also sought to delay the implementaion of a proposed
0% import duty at 228 tarif posts that are considered
suiciently sensiive.
In accordance with the strengthening global and domesic
economic recovery in 2010, the trade, hotels and
restaurants sector is projected to grow by 5.1% - 5.5%,
encouraged primarily by stronger public purchasing power
as relected by robust household consumpion. Stronger
public purchasing power provides a posiive impetus
to manufacturing industry performance and, in turn,
boosts wholesale and retail trade acivity. In addiion,
lower lending rates serve as a inancing incenive for
this sector. Meanwhile, performance of the hotels and
restaurants sub-sector will also increase in line with the
global economic recovery, supported by various eforts to
improve the tourism organized by the Government. The
Government targets 7 million foreign tourists in 2010; up
from 6.5 million in 2009.
The agricultural sector in 2010 is projected to grow in
the range of 4.1% - 4.4%. Delays in the 2010 cropping
season as a result of a stronger El Nino is expected to
afect agricultural sector performance, in paricular rice.
Despite the delays, the food stock is expected to be
maintained. Surplus food producion in 2009 will be used
to cover the addiional food requirement in 2010. In order
to support agricultural sector development, especially
in the context of maintaining food stock and food selfsuiciency, the Government will promulgate an array of
regulaions on agrarian reform in 2010. Through agrarian
reform, the Government aims to increase farmers’ land to
a minimum of two hectares per family. The area of land
available amounted to totals 7.13 million hectares, which
is designated for the expansion of crop farming.
The transportaion and communicaions sector is
projected to record relaively expansive growth in the
range of 12.6% - 14.3% in 2010, in line with the beter
economic prospects. In anicipaion of increased trade
acivity (exports and imports) due to improving economic
condiions, the Government will implement a 24-hour
service for the 13 irst-class ports in Indonesia. The irst
phase of this program will be implemented at four major
ports, namely Tanjung Priok (Jakarta), Tanjung Perak
(Surabaya), Belawan (Medan) and Makassar. The new
24-hour service will facilitate the low of goods in and
out of Indonesia and reduce waiing ime for docked
and unloading ships. For air transport, the Government
has made arrangements for pioneers air transportaion
service as well as reining the contract system from
one year to three years. In addiion, the Department of
Transportaion will also increase the pioneering air service
subsidy in 2010 serving 118 routes in 15 provinces. In
the communicaions sub-sector, internet development
is projected to grow rapidly, considering the large
potenial internet market in relaion to the relaively small
percentage of domesic internet users (around a mere 2.5
million) compared to the total populaion of Indonesia.
In 2010, growth in the construcion sector is projected
to surpass that of 2009, which is in the range of 8.1% 8.5%. Strong government support for infrastructure will
drive construcion sector performance. This is in line with
the Government commitment to support infrastructure
development in order to catalyze economic development.
Infrastructure development projects are included in the
RPJMN priority program 2010-2014. To this end, the
Government is planning to roll out economic simulus
packages to promote the development of naional
infrastructure. The acceleraing development program
of electricity infrastructure Phase II of the 10,000 MW
project will commence in 2010.
Heightened economic acivity in 2010 will also boost
acivity in the inancial sector, leasing and corporate
services. In the real estate sector, oice leasing began to
gain momentum, especially for small space oice leasing.
Furthermore, in order to seize the market, research
aciviies, product promoion and exhibiions are expected
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
179
to enliven business sector. Consequently, the related
industries that engaged in the growing sector will also
expand as well as their contribuion to the sector. Against
this backdrop, growth of the inancial sector, leasing and
services in 2010 is forecast to achieve 4.9% - 5.3%.
Balance of Payments (BoP) Outlook
The rapid global economic recovery brings posiive impact
to the balance of payments projecion in 2010. Coninuing
its performance in 2009, the balance of payments is
projected to maintain a surplus. On the commodiies
market, a combinaion of strong external demand
and rising commodity prices will sustain the export
performance. From the domesic side, the global economic
growth will be transmited into the growing of investment
and consumpion aciviies that push up the value of
imports. In terms of capital and inancial transacions, the
deleveraging process that expected to abate and the global
monetary that expected to remain accomodaive, will
spur short-term inlows in the form of porfolio, although
on a more limited scale compared to previous periods.
Consequently, the balance of payments in 2010 is projected
to run a surplus of USD12.5 billion, therefore, with foreign
exchange reserve at the end of 2010 ammouning to total
USD 78.5 billion; equivalent to 6.4 months of imports and
foreign debt repayments (Table 6.5).
Table 6.5 Balance of Payments Outlook in 2010
millions of USD
Items
I. Current Account
A. Goods, net (Trade Balance)
2009
2010**
10,582
4,996
35,197
33,574
- Export, fob.
119,513
139,737
- Import, fob.
-84,316
-106,163
1. Non-Oil and Gas
26,860
22,169
- Export
99,063
113,734
- Import
-72,203
-91,565
8,337
11,404
2. Oil and Gas
- Export
20,451
26,003
- Import
-12,113
-14,599
B. Services, net
-14,155
-16,101
C. Income, net
-15,331
-17,496
D. Current Transfer, net
II. Capital and Financial Account
A. Capital Transacion
B. Financial Transacion
4,871
5,018
3,673
7,500
96
161
3,577
7,339
1. Direct Investment
2,313
5,971
2. Porfolio Investment
10,103
6,682
3. Other Investment
III. Total (I + II)
-8,838
-5,314
14,255
12,495
IV. Net Errors and Omission
-1,749
0
V. Overall Balance (III + IV)
12,506
12,495
VI. Reserve and Related Items*)
-12,506
-12,495
-12,506
-12,495
0
0
66,105
78,464
6.5
6.4
A. Reserve Asset Changes
B. IMF Purchases
Memorandum:
Internaional Reserve
(in months of imports and oicial foreign debt repayment)
* (-) surplus; (+) deicit
** Bank Indonesia’s projecion
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CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
Current Account
The current account is expected to record a surplus of
USD5.0 billion in 2010, which is about 0.8% of GDP. This
is mainly atributable to strong exports that are projected
to increase in line with an upswing in external demand
and soaring global commodity prices. Exports of goods
are projected to reach USD140 billion in 2010. By the
type of commodiies, the export performance is derived
from natural resource-based commodiies, as well as
manufacturing commodiies, which is in line with the
recovery in economic condiions in developed countries.
Meanwhile, the posiive global economic growth will also
be transmited to the domesic economy by increasing
absorpion of the economy. Increased economic acivity
will encourage the use of raw materials, capital goods and
consumpion, including goods that cannot be provided
domesically. As a result, imports of goods are forecasted
to reach 106 billion US dollars in 2010.
Meanwhile, the transacion on service, income and
current transfers in 2010 will record a deicit of
USD29 billion. Rising oil prices and trading aciviies
will inluence the deicit in the balance of services,
paricularly transportaion services. Rising oil prices
will also escalate the deicit in income account, in line
with increased producion sharing revenue for foreign
companies engaged in the oil and gas sector. The deicit
in income account will be exacerbated by the increased of
government foreign debt interest payments. Meanwhile,
the surplus in current transfers will slightly increase
compared to the previous period. Amid improving global
economic condiions, the foreign exchange earnings from
foreign tourists and remitances from Indonesian workers
overseas (TKI) will become a potenial alternaive source
of foreign exchange.
Capital and Financial Account
The capital and inancial account will record a surplus
of about 7.5 billion US dollars in 2010 supported by the
upbeat domesic economic outlook and accommodaive
global monetary policy. Opimism on future economic
prospects, which is also supported by rising commodity
prices, will atract capital inlows in the form of direct
investment, to the oil/gas sector and non-oil/gas sector.
In terms of porfolio investment, the surplus is projected
to persist. Porfolio investment will coninue to surge due
to the accommodaive global monetary policy and posiive
economic outlook. Furthermore, government plans to
issue internaional bonds in 2010 will also posiively
support the porfolio investment.
The last component in the capital and inancial accounts,
that is, other investment, is predicted to be remain
in deicit although lower than the deicit in 2009. In
accordance with the increase in government spending and
investment in 2010, domesic inancing and funding that
stems from foreign debt in the form of credit programs
and projects will exceed that of 2009. Likewise in the
private sector, credit in the form of non-FDI is expected to
surpass that of 2009, in line with the growing requirement
for domesic inancing. The improving economic outlook
and soaring commodity prices may further encourage a
larger low of private funds.
Rupiah Exchange Rate Outlook
In general, the Rupiah during 2010 will remain stable
in a range that is slightly stronger than during 2009.
Rupiah appreciaion will be bolstered by solid economic
fundamentals amid more conducive external condiions.
Rupiah stability in 2010 will be supported by the balance of
supply and demand in the foreign exchange market, in line
with improving risk appeite of global investors for domesic
inancial assets as well as increasing in non-oil exports.
However, potenial pressures will remain on the rupiah
in 2010, both externally and domesically. From the
external side, improving global economic condiions and
rising commodity prices will increase the potenial risk
of inlaionary pressures in 2010, which in turn can afect
rupiah performance. From the domesic side, the beter
economic outlook will spur import demand, resuling
in stronger demand for US dollars. In this regard, Bank
Indonesia will coninue to monitor the various risk factors
that can put pressure on the rupiah as well as managing
rupiah exchange rate volaility by balancing demand and
supply on the foreign exchange market. In addiion, Bank
Indonesia will also enhance the efeciveness of prudenial
regulaions and monitoring foreign exchange transacions.
Inlaion Outlook
In 2010, headline inlaion (IHK) is predicted to remain
under control within the target range of 5% ± 1%. From
the external side, inlaionary pressures will principally
emanate from rising inlaion in trading partner countries
in line with the global economic recovery and rising
internaional commodity prices, in paricular the global
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
181
oil price. From the domesic side, inlaionary pressures
in 2010 will originate from expansive economic growth
in 2010, which is indicated by a slight increase in total
capacity uilizaion. Meanwhile, the inlaion expectaion
in 2010 will sill decline, associated with the low
realizaion on inlaion in 2009, the stable rupiah and the
absent of the strategic administraive price adjustment
from the government.
In terms of non-fundamentals aspects, higher inlaionary
pressures are predicted to emerge from hikes in several
non-strategic administered prices. The rise in administered
inlaion is associated with the government plans to
adjust the prices of non-strategic goods and services.
Meanwhile, the volaile food inlaion is projected to
increase compared with that of 2009, but remain below
its historical average. The threat of El Nino, which is
feared will raise internaional food commodity prices, is
esimated to have a minimal impact on domesic food
prices. This is conirmed by fairly wide discrepancies in
several domesic food prices compared to internaional
prices, which implies that domesic commodity prices are
not elasic to changes in internaional prices. The relaively
low volaile food inlaion is also supported by manageble
supply and distribuion of food, paricularly staples.
Banking Outlook
In general, the Indonesian banking prospect is posiive,
due to robust domesic economic growth which exceeds
that of most other countries. In terms of capital adequacy,
the banking which dominate Indonesia’s inancial sector,
is projected to be suicently resilience. In terms of bank
intermediaion, the banks commitment to coninue
adjusing lending and saving rates coupled with improving
economic prospects will precipitate an increase in bank
lending. Accordingly, bank credit will grow by around
17-20% in 2010. Bank Indonesia will coninue to monitor
the banking system and coninue eforts to enhance the
banking eiciency, which in turn will ameliorate the bank
intermediary funcion.
In terms of risk, the banking resilience in 2010 will remain
adequate to absorb the various potenial risks. This is
supported by the products of naional banking which
are relaively convenional, which in turn will minimize
problems to a lesser extent compare to those faced by
their foreign counterparts. However, external factors
can sill negaively afect the banking system if not fully
anicipated and prevenive measures are not taken.
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CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
The posiive bank outlook will also enhanced by the
implementaion of several future agendas such as
operaional risk under the Basel II framework and the
implementaion of PSAK No. 50 and 55, which are
considered to potenially improve market conidence.
Concerning the implementaion of Basel II, one of the
key issues is the impact of applying capital charges for
operaional risk on bank capital. PSAK No.50 and 55
relate to among others the implementaion of marking to
market for all assets and liabiliies of inancial insituions,
including banks. In general, the implementaion of those
agendas will heighten market conidence on Indonesia
in the future. To ensure the smooth implementaion
of Basel II and the two accouning standards, efecive
communicaion with stakeholders and other relevant
paries is necessary to harmonize all viewpoints regarding
the beneits to inancial system stability as a whole.
Non-Bank Financial Market Outlook
In line with the ongoing global economic recovery and
a relaively sound domesic macro and micro indicators,
non-bank inancial market performance in 2010 is
expected to coninue improving. Concomitantly, growth
and innovaion in inancial product will enliven non-bank
inancial market development in the future.
In the stock market, the Jakarta Composite Index (JCI) has
the potenial to reach its highest historical level in 2010.
This is based on the beter inancial reporing prospects,
the larger capital spending plan and higher foreign interest
related to a more conducive economic performance. Due
to the growing composiion of commodity-based sectors
on the stock market, soaring global commodity prices will
have a posiive impact on the stock market. Consequently,
stock trading aciviies as a whole are also projec
to Tie-up in the Land
of Hope
It’s ime to prepare the anchor that had been lited from
the sea, back to be grounded to the sea. Keep your eyes
open to see the land that ready to greet you. Millions of
hope awaits you behind the friendliness and the dynamic
of its ciizen life. It doesn’t mean the journey has ended;
it’s just a ime to put your feet up before return to cross
the sea bravely.
i
CHAPTER
VI
ECONOMIC OUTLOOK AND BANK
INDONESIA’S POLICY DIRECTION
Economic Outlook and Bank
Indonesia’s Policy Direcion
Amid severe pressures stemming from the global
economic crisis, a number of posiive achievements in
Indonesian economy during 2009 boosted opimism
over the sustainability of an ongoing economic
recovery. The posiive economic performances
include the recovery of inancial system stability, the
strengthening of rupiah, the low inlaion pressure,
and the fairly high economic growth. Opimism
on an improvement in economic prospects was
strengthened further by a more conducive global
economic outlook.
Despite increasing opimism, Indonesia’s future
economic development sill has to cope with
numerous challenges that could potenially hamper
the pace of economic recovery. From the external
side, the challenge is primarily related to the impacts
of the strategy to unwind the measures adopted
by developed countries in response to global crisis,
which include monetary easing and iscal expansion.
External challenges also include the polarizing trend
of global trade and the large imbalances in global
economic performance. From the domesic side,
challenges are related to several issues that could
disrupt the efeciveness of monetary policy, such
as excess bank liquidity, the dominance of shortterm inlows in the structure of capital inlows, the
potenial asset price bubble, a shallow inancial
market and numerous structural problems in the real
sector.
168
With a solid foundaion built on the strength of
robust economic performance of the previous
year and in line with improving global economic
projecions, as well as support from an array
of policies that will be taken to address various
challenges in the economy, the Indonesian
economic prospect is expected to be beter. Strong
macroeconomic performance is also supported by
preserving price and inancial system stability, which
represent the main foundaions of overall economic
resilience. In 2010, the economy will regain its
momentum with GDP growth forecasted in the range
of 5.5% - 6.0% (yoy). Despite expansive economic
growth, inlaionary pressure is expected to remain
under control within the 2010 inlaion target range
of 5% ± 1% (yoy). Meanwhile, the global economic
recovery will bring posiive impact on the balance
of payments in 2010. The current account will again
run a surplus, primarily driven by strong export
performance for goods and services. The capital
and inancial account will also record a surplus,
accompanied by improvement in the structure of
capital inlows. The foreign direct investment will
surge in line with greater opimism regarding future
economic prospects. The short-term inlows will also
persist, however, on a more limited scale compared
to previous periods. Against this propiious backdrop,
the overall balance of payments in 2010 is projected
to record a surplus of USD12.5 billion, with foreign
exchange reserves at the end of 2010 expected to
reach USD78.5 billion; equivalent to 6.4 months of
imports and foreign debt repayments. In accordance
with the posiive forecast for the balance of
payments, the exchange rate in 2010 is expected to
remain stable with a tendency to appreciate slightly
compared to 2009.
Looking ahead over a longer horizon, economic
projecions will improve in line with the increase
in capital accumulaion as well as improvements
in producivity and eiciency. Increased capital
accumulaion will simultaneously boost economic
capacity and generates income. Meanwhile,
increased economic producivity, relected by TFP,
will ulimately catalyze higher economic growth in
the long run. Support from the sources of economic
growth will enable eforts to expedite economic
growth, followed by managed inlaionary pressures
and preserved inancial system stability. Under these
circumstances, economic growth is projected to
expand in the range of 6.5% - 7.5% (yoy) by 2014,
bolstered by an inlaion rate maintained within the
medium-term inlaion target corridor of 4% + 1%
(yoy).
To address the assortment of challenges that could
potenially impede the economic recovery, various
policies are required to support the achievement of
this economic outlook. In terms of government policy,
stronger economic performance will be diicult to
accomplish without solving the structural issues
that have not been handled opimally. A number of
structural issues, such as infrastructures problems,
the unfavorable business and investment climate,
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
169
and the inadequate quality of human resources, have
received special government atenion as set out in
the Medium-Term Development Plan (RPJMN) 20102014. In the short term, various policy measures
are expected to overcome the botlenecking that
had undermined investment acivity. In the longer
term, various breakthroughs in the real sector are
expected to increase economic compeiiveness
as a whole, paricularly by amelioraing human
170
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
capital. Concomitantly, Bank Indonesia policies are
designed to maintain macroeconomic and inancial
system stability, as well as encourage banking
intermediaion to shore up sustainable economic
growth. Coordinaion between the Government
and Bank Indonesia will coninue to improve by
opimizing the various forums that already exist, both
in central and rural areas, such as, TPI/TPID.
Economic Prospects
g
6.1
Assumpions
Indonesian economic projecions are based upon a
number of assumpions, both externally and domesically.
Externally, assumpions relate to forecasts of several
global economic variables that afect Indonesia, for
example global trade volume as well as oil/gas and nonoil/gas prices. Domesically, assumpions relate to the
iscal deicit as well as various policies adopted in terms of
amelioraing the investment climate.
Global Economic Assumpions
Global Economic Growth and Trade Volume
Signs of a global economic recovery began to appear upon
entering the second half of 2009. The downturn in global
economic growth as a result of the crisis ended in the irst
quarter of 2009 and, subsequently the global economy is
projected to grow posiively in 2010. These projecions are
supported by a variety of factors, including a recovery in
the global inancial sector coupled with macroeconomic
policy that is expected to remain accommodaive unil the
recovery process is suiciently stable.
Against this backdrop, growth in developed countries,
namely the US, Europe and Japan in 2010, is projected
to reach about 2.7%, 1.0% and 1.7%112 respecively.
In the meanime, countries in Asia are expected to be
the main engine of the global economic recovery led
112 World Economic Outlook Update, IMF, January 2010
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
171
by China and India. In 2010, China’s economic growth
is projected to achieve 10.0% and India 7.7%. The
rapid pace of economic recovery in China and India is
expected to simulate imports to these countries, and
simultaneously will increase exports from other Asian
countries. This improvement in external performance
will be accompanied by a recovery in consumpion that
could potenially accelerate the Asian economic recovery
further, outpacing that of other regions.
In the medium term, economic growth in developed
countries is expected to return to levels before the global
crisis. The US economy is esimated to grow toward the
range of 2.1%, while European countries is expected
to grow by 2.1% in 2014, approaching levels in 2007113.
Meanwhile, developing countries especially China
and India, that have so far been able to maintain solid
economic growth, are projected to grow at 9.5% and 8.1%
respecively in 2014.
Looking at the posiive correlaion between global
economic growth and trade volume, as relected by the
historical data, Bank Indonesia predicts that the volume
of global trade will expand by about 8.0% (yoy) in 2010.
Subsequently, the world trade volume will coninue to
increase gradually to around 9.2% in 2014 (Chart 6.1).
per barrel. This concurs with IMF114 projecions that the
average global oil price in 2010 will increase by 22.6%
to a level of USD76.0 per barrel. In addiion to a surge
in demand, the dynamic of the global oil price is oten
inluenced by speculaive acivity on the global commodity
market.
Looking ahead, the oil price is expected to follow an
upward trend in line with stronger global economic
growth. However, the anicipated increase in oil supply
capacity in the following periods is expected to rein in
any exorbitant hikes in the global oil price. The Energy
Informaion Administraion (EIA) esimates the global oil
price using three scenarios over a longer horizon (2009 to
2030), namely high prices, the reference price (baseline)
and low prices115. A high oil price trajectory relects a
global oil market beset with various constraints, including
poliical issues, producion quotas and naionalizaion
issues, that drive the price towards USD132.8 per barrel
in 2014. A low oil price trajectory, that is in the range
of USD52.7 per barrel, describing a global oil market
supported by addiional producion of non-OPEC oil and
greater private paricipaion in developing oil resources.
Notwithstanding, the baseline global oil price in 2014 is
projected to reach USD90.9 per barrel (Chart 6.2). Based
on these informaions, Bank Indonesia predicts that the oil
price will increase to nearly USD100 per barrel by 2014.
Global Commodity Prices
In accordance with the global economic recovery, the
downward trend in commodity prices is expected to cease
in 2010. The price of Minas crude oil in 2010 is expected
to coninue to rise and reach a level of around USD80
114 World Economic Outlook Update, IMF, January 2010
115 Annual Energy Outlook, December 2009, EIA
113 World Economic Outlook, IMF, October 2009
percent
Meanwhile, non-oil commodity prices in 2010 are also
esimated to rise in line with stronger global demand
and higher oil prices. The industrial sector expansion
in the majority of all countries will boost demand for
percent
8
15
10
7
140
6
120
5
5
USD/barrel
160
132.8
100
4
3
0
-5
2
60
1
40
52.7
World Trade Volume
World GDP Growth (rhs)
Source: WEO update January 2010, WEO October 2009, Bank Indonesia Projecion
Chart 6.1 World GDP Growth and Trade Volume
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
Reference Price
Highest Price
Lowest Price
Source: Annual Energy Outlook, December 2009, EIA
Chart 6.2 World Oil Price Forecast
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
0
1982
-2
20
1980
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
-1
172
90.9
0
- 10
- 15
80
commodiies, paricularly raw materials such as coal,
crude palm oil (CPO), nickel and other minerals, which in
turn will drive up commodity prices. In addiion to raw
materials, food commodity prices are also esimated
to rise. However, future inlaionary pressures on food
commodity prices is expected to be moderate considering
that the elasicity of demand of such produce is relaively
insensiive to the business cycle, as well as the forecast
of good global crop in the short-term. However, mediumterm inlaionary pressures on food commodity prices
will remain due to the possibility of adverse weather
condiions that could undermine global food stock amid
rising global demand. Based on such condiions, Bank
Indonesia predicts non-oil commodity prices to re-enter
an increasing phase in 2010 by rising about 13% (yoy).
Non-oil price pressures are expected to ease slightly and
tend to be more stable in the long run.
Global Inlaion
The expected recovery in global demand, which in turn
simulate the increase in prices of various commodiies,
will ulimately trigger global inlaionary pressures. In
2010, inlaion in developed countries are forecast to
reach 1.3% (yoy), from around 0% in 2009116. Despite the
support of lower wage trends in developed countries,
soaring commodity prices, especially oil, will push up
the rate of inlaion. In developing countries, inlaion is
projected to reach about 6.2% (yoy) in 2010 from 5.2%
in 2009. The surge of inlaion in developing countries
is primarily triggered by limited economic capacity and
a surge in capital inlows. In the medium term, inlaion
in developed countries is esimated to gradually return
to the range recorded prior to the global crisis. In the
US, inlaionary pressures are expected to steadily reach
around 2.0% in 2014. Meanwhile, inlaion is projected to
decline in developing countries to roughly 4.0% by 2014117.
remain accommodaive to support economic recovery
process. In this context, the global interest rate in the
short term is esimated to remain low. A ighter monetary
policy stance is expected to emerge in the middle of
2010 in line with projecions of a more stable economic
recovery in many countries.
Global Foreign Direct Investment (FDI)
In line with the global economic recovery, survey
results indicate that short-term global FDI lows are
sill experiencing the negaive impacts of the crisis119.
However, global FDI lows will gradually recover and grow
posiively in 2011 in accordance with improvements in the
domesic economy, which is the target of global FDI, and
the increasing in global investor interest to reinvest capital
in a number of countries.
For Indonesia, an increasingly conducive domesic
investment climate and infrastructural improvements
will atract global FDI. This is conirmed by survey results
in which Indonesia is ranked of 9th out of the 15 most
desirable regions for foreign investors to invest their
capital (Chart 6.3).120 Indonesia’s appeal includes growth
and size of market, access to natural resources and
inexpensive labor costs (Chart 6.4).
Global FDI inlows as an alternaive form of investment
inancing will enhance capital accumulaion. Furthermore,
global FDI is also expected to pave the way for technology
and innovaion that will, in turn, increase economic
producivity and eiciency.
119 World Investment Prospects 2009 – 2011, UNCTAD.
120 Ibid
percent of responses
The expected global inlaionary pressures encourages
central banks in various countries to begin considering a
ighter monetary policy stance in the following periods.
However, high uncertainty coninues to prevail and the
economic recovery process is not yet well sustained
provide a challenge for policymakers around the world118.
In the short term, the priority for policymakers will sill
aimed at maintaining the inancial system stability while
60
50
40
30
20
10
France
Poland
Mexico
Vietnam
Canada
Indonesia
Australia
Germany
UK
India
Brazil
Russian
Federaion
116 World Economic Outlook Update, IMF, January 2010
117 World Economic Outlook, IMF, October 2009
118 More details are available in Chapter 2 - Global Economic Recovery
and Future Challenges
USA
China
0
Source: UNCTAD
Chart 6.3 The Most Atracive Economies
for The Locaion of FDI 2009-2011
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
173
percent
Growth of Market
2.0
20%
1.5
Size of Local Market
Forecasts
16%
1.0
Access to Natural Resources
15%
Cheap Labour
0.5
13%
Access to Internaional/Regional market
Presence of Suppliers and Partners
Availabilty of skilled Labor and Talents
0.0
10%
-0.5
10%
-1.0
-1.5
7%
Follow Your Compeitors
-2.0
5%
-2.5
Stable and business-Friendly
environment
3%
0%
5%
-3.0
10%
15%
20%
25%
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Percent of responses
Source: UNCTAD (processed)
Chart 6.4 Factor favouring Investment
Domesic Economic Assumpions
Fiscal Policy
In line with expectaions of an economic recovery in 2010,
the State Budget (APBN) 2010 will support eforts to boost
the naional economic recovery while maintaining the
sustainability of improvement programs and protecing
public welfare. Expectaions of an economic recovery
are relected in the assumpion used for the 2010 State
Budget. The Government assumes that the economy
will grow by 5.5%, surpassing that in 2009 at 4.5%.
Furthermore, inlaion in 2010 is assumed at a level of
5% and the average interest rate of 3-month SBI is 6.5%.
Externally, the global crude oil price is projected to reach
USD65 per barrel.
The assumpion of stronger economic expansion in 2010
will improve the structure of the Budget compared to
condiions in 2009. The improved Budget will enable
the Government to provide a variety of simulus to
the economy, both in terms of revenues and spending.
The Government will coninue several iscal incenives
introduced during 2009 to catalyze industrial and business
revitalizaion. The iscal incenives will be provided in the
form of corporate income tax reducions, the provision of
a corporate income tax facility for unlisted companies and
government-borne tax (DTP) policy.
Regarding spending, the Government will roll out a variety
of programs designed to simulate economic acivity. The
programs include the coninuaion of welfare programs
such as the Naional Community Empowerment Program
(PNPM), School Operaional Assistance, Public Health
Insurance, Rice for the Poor Household (Raskin) and
174
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
Source: Financial Note and State Budget 2010, Ministry of Finance
Chart 6.5 Realizaion and Forecasts of Fiscal Deicit
the Family Hope Program. In addiion, the Government
will also coninue the infrastructures development and
bureaucracy reforms, increase the military budget,
maintain educaion spending at a minimum of 20% of
Naional spending, as well as maintaining the real income
of civil servants and pensions. Real income is maintained
through a 5% increase in the basic salaries and pensions
of civil servants as well as the provision of a 13th-month
salary.
With the macroeconomic assumpions set up above as
well as the various programs planned on the revenue and
spending sites, the iscal deicit for 2010 is esimated to
be around Rp98 trillion, or 1.6% of GDP (Table 6.1). The
deicit will be funded by debt and non-debt inancing.
Debt inancing includes the issuance of net SBN, loans to
domesic banks, and net repayments on foreign loans.
Meanwhile, the non-debt inancing is primarily sourced
from the use of government deposits held at Bank
Indonesia.
In the medium term, the iscal deicit will decline gradually
to 1.2% of GDP by 2014 (Chart 6.5). This is based on a
number of external assumpions such moderate global
economic growth, relaively stable crude oil prices in the
range of USD70-85 per barrel, rising inlaion and interest
rates in US, and relaively stable inlaion in trading
partner countries.121 In addiion, domesic economic
condiions are also assumed to be conducive supported
by ongoing iscal consolidaion under a framework of
maintaining iscal sustainability, raising absorpion of
121 Based on the Medium-Term Naional Budget Framework published
in the Financial Notes and Naional Budget 2010
Table 6.1 State Budget 2010
2010
State Budget
2010 (trillions of
rupiah)
% of GDP
949.7
15.9
742.7
12.4
715.5
12.0
351.0
5.9
1. Oil and Gas
47.0
0.8
2. Non-Oil and Gas
303.9
5.1
A. Total Revenues and Grants
I. Tax Revenues
1. Domesic Taxes
a. Income Tax (PPh)
b. Value Added Tax / Value Added Tax for Luxury Goods (PPN/PPnBM)
269.5
4.5
c. Land and Building Tax (PBB)
26.5
0.4
d. Duies on Land and Building Transfer
7.4
0.1
e. Excise Duies
57.3
1.0
3.9
0.1
27.2
0.5
f. Other Taxes
2. Internaional Trade Taxes
a. Import Duies
19.6
0.3
b. Export Tax
7.6
0.1
205.4
3.4
132.0
2.2
II. Non-Tax Revenues (PNBP)
1. Natural Resources Revenues
a. Oil and Gas
120.5
2.0
b. Non-Oil and Gas
11.5
0.2
2. Proit Transfer from SOE's
24.0
0.4
3. Bank Indonesia Surplus
9.5
0.2
4. Other Non-Tax Revenues
39.9
0.7
1.5
0.0
III. Grants
B. Government Expenditures
1.047.6
17.5
I. Central Government Expenditures
725.2
12.1
i.e. Subsidies:
157.8
2.6
68.7
1.1
b. Non-Fuel Subsidy
89.1
1.5
II. Regional Expenditures
322.4
5.4
a. Fuel Subsidy
1. Balancing Funds
306.0
5.1
a. Revenue Sharing
81.4
1.4
b. General Allocaion Funds
203.5
3.4
c. Special Allocaion Funds
21.1
0.4
16.4
0.3
C. Primary Balance
2. Special Autonomy and Equalizaion Funds
17.6
0.3
Surplus/Deicit Budget
-98.0
-1.6
D. Financing
98.0
1.6
I. Domesic Financing
107.9
1.8
1. Domesic Banks
7.1
0.1
2. Non-Domesic Banks
i.e Government Bonds, net
II. Foreign Financing
100.8
1.7
104.4
1.7
-9.9
-0.2
Source : State Budget 2010, Ministry of Finance
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
175
Table 6.2 Forecast of Main Economic Indicators 2010
Components
Gross Domesic Product
Unit
2009
2010*
%y-o-y
4.5
5.5 - 6.0
Private Consumpion
%y-o-y
4.9
4.5 - 5.0
Government Consumpion
%y-o-y
15.7
5.9 - 6.9
Gross Fixed Capital Formaion
%y-o-y
3.3
8.8 - 9.3
Export of Goods and Services
%y-o-y
-9.7
10.2 - 11.0
%y-o-y
-15.0
12.5 - 13.5
%y-o-y
2.78
5.0 ± 1.0
Import of Goods and Services
CPI Inlaion**
Balance of Payment
millions of USD
12,506
12,495
Current Account
millions of USD
10,582
4,996
Capital and Financial Account
Internaional Reserve Posiion
millions of USD
3,673
7,500
millions of USD
66,105
78,464
Source: Staisics Indonesia
* Bank Indonesia’s Projecion
**End of period
the Budget Implementaion Entry List (DIPA), declining
raio of debt to GDP and increasing in infrastructures
development.
Real Sector Policy
Improved economic performance will be diicult to
achieve without solving a number of structural issues that
have not been opimally handled to date. These structural
constraints received special Government atenion as
sipulated in the 2010-2014 RPJMN. To this end, economic
development for the next 5 (ive) years will focus on 6
(six) direcions, namely infrastructures development, food
security, energy security, SME development, revitalizaion
of industry and services, and transportaion development.
These six direcions of development are outlined in a
variety of programs and acion plans with their respecive
schedules and implementaion deadlines.122
The various programs and acion plans menioned, if
implemented well, will signiicantly contribute to the
economic development process in future. In the short
term, these measures are expected to overcome the
various botlenecks that are hampering investment
aciviies. In the longer term, many breakthroughs in the
real sector are projected to boost economic producivity
and compeiiveness as a whole. In an era where the
dynamics of the domesic economy are inseparable
from the global economy, improving domesic economic
122 Quoted from minutes of the RPJMN Meeing 2010-2014, December
2009 (source: Indonesian Ministry for Economic Coordinaion).
176
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
compeiiveness is pivotal in order to ensure that
Indonesia can reap the beneits of increasing integraion
between the domesic and global economies. At the
regional level, increasing economic compeiiveness
is required to face the era of the ASEAN Economic
Community (AEC) in 2015 (Box 6.1: Preparaions for AEC).
Regarding the issue of increasing human capital, the
Government is expected to opimize its role in providing
fundamental aspects, such as broadening access to
educaion and health services, in paricular for the most
needed community.
g
Economic Prospects in 2010
Indonesian economy in 2010 is predicted to return to a
phase of rising economic growth. The indicaions that
the global recovery is proceeding sooner than previously
expected have boosted opimism over Indonesian
economic outlook. Such opimism is also supported by
domesic economic resilience that endured the efects of
the global crisis. The increased opimism over Indonesian
economic outlook is conirmed by the raised in Indonesia’s
raing by internaional raing agencies in early 2010.123
Economic growth is projected to reach 5.5% - 6.0% (yoy) in
2010. From a demand side, improved export performance
123 Internaional raing agency Fitch on 25th January 2010 raised
Indonesia’s sovereign raing to BB+ from BB with a stable outlook.
Also, internaional raing agency Standard and Poor’s (S&P) in March
2010 raised Indonesia’s long-term foreign exchange raing to BB
from BB- with a posiive outlook.
price adjustments, will be some factors that inluence the
domesic price performance. Against these backdrops,
inlaionary pressure is expected to remain under
control, within the 2010 target inlaion range of 5% ±
1% (yoy), amid growing economic acivity. Furthermore,
improvements in macroeconomic performance will
be supported by inancial system stability, which has
become the foundaion of economic resilience as a
whole. A solid inancial system will also enhance the
intermediaion funcion of inancial insituions, enabling
them to eiciently mobilize funds. The enhancing banking
intermediaion is relected in a projected 17-20% increase
in bank credit in 2010.
and increased investment acivity will drive expansive
economic growth. This is in line with stronger sectoral
performance, especially in the main sectors contribuing
to GDP. Signiicant improvements are predicted to take
place in the manufacturing sector, which its performance
over the last ive years is in a downward trend, and further
exacerbated by the onset of the global crisis in the fourth
quarter of 2008. Important indicaions that support this
improving trend for the manufacturing sector include
increasing capacity uilizaion, expanding imports of
raw materials and higher electricity consumpion in the
corporate and industrial sectors. However, a number of
challenges remain, in paricular those related to structural
problems, such as infrastructure, less contestable market
structure that undermines compeiiveness, and so forth.
The challenges faced by the manufacturing sector in 2010
will be magnify with the implementaion of the ASEANChina Free Trade Agreement (AC-FTA) in early 2010.
Economic Growth Outlook
Aggregate Demand Outlook
From a demand side, economic growth in 2010 (Table 6.3)
will primarily be driven on the back of strong exports and
a surge in investment acivity.
The ongoing of global economic recovery has posiive
impact on the forecast of Indonesia’s balance of payments
(BoP) in 2010. The current account will again record a
surplus on the back of increased exports of goods and
services. Regarding the inancial and capital account,
the deleveraging process that expected to abate and the
global monetary that expected to remain accomodaive,
will spur short-term inlows in the form of porfolio,
although on a more limited scale compared to previous
periods. Consequently, BoP is projected to run a USD12.5
billion surplus in 2010, with foreign exchange reserves
amouning to USD78.5 billion, equivalent to 6.4 months
of imports and foreign debt repayments. Accordingly, the
exchange rate in 2010 is expected to remain stable with a
slight tendency to appreciate compared to 2009.
The ongoing global economic recovery will enhance
exports performance in 2010 with the growth projected in
the range of 10.2% -11.0%. The expansion of Indonesia’s
exports will be supported by exports of primary
commodiies such as palm oil, agricultural produce as well
as mining products such as coal and copper. Consequently,
Indonesian exports are projected to experience a fairly
rapid recovery buoyed by stronger demand in trading
partner countries because of the raw materials’s role in
the iniial phase of the industrial producion process.
Meanwhile, opimism over economic recovery is expected
to encourage investment to grow in the range of 8.8%
- 9.3% in 2010. This is backed up by several indicators
such as increasing material imports to various sectors
as well as industrial electricity consumpion. Business
Exchange rate stability coupled with the assumpion that
the Government will not impose strategic administraive
Table 6.3 Economic Growth Outlook by Expenditure
percent yoy, price 2000
Components
Gross Domesic Product
Household Consumpion
2004
2005
2006
2007
2008
2009
2010*
5.0
5.7
5.5
6.3
6.0
4.5
5.5 - 6.0
5.0
4.0
3.2
5.0
5.3
4.9
4.5 - 5.0
Government Consumpion
4.0
6.6
9.6
3.9
10.4
15.7
5.9 - 6.9
Gross Fixed Capital Formaion
14.7
10.9
2.6
9.3
11.9
3.3
8.8 - 9.3
Export of Goods and Services
13.5
16.6
9.4
8.5
9.5
-9.7
10.2 - 11.0
Import of Goods and Services
26.7
17.8
8.6
9.1
10.0
-15.0
12.5 - 13.5
Source: Staisics Indonesia
*Bank Indonesia’s Projecion
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
177
Table 6.4 Economic Growth Outlook by Industry
percent yoy, Price 2000
Sector
Gross Domesic Product
2004
2005
2006
2007
2008
2009
2010*
5.0
5.7
5.5
6.3
6.0
4.5
5.5 - 6.0
Agriculture
2.8
2.7
3.4
3.5
4.8
4.1
4.1 - 4.4
Mining and Quarrying
-4.5
3.2
1.7
1.9
0.7
4.4
4.2 - 4.4
Manufacturing
6.4
4.6
4.6
4.7
3.7
2.1
4.1 - 4.4
Electricity, Gas and Water Supply
5.3
6.3
5.8
10.3
10.9
13.8
13.6 - 14.2
Construcion
7.5
7.5
8.3
8.5
7.5
7.1
8.1 - 8.5
Trade, Hotels and Restaurant
5.7
8.3
6.4
8.9
6.9
1.1
5.1 - 5.5
Transport and Communicaion
13.4
12.8
14.2
14.0
16.6
15.5
12.6 - 14.3
Finance, Real Estate and Business Services
7.7
6.7
5.5
8.0
8.2
5.0
4.9 - 5.3
Services
5.4
5.2
6.2
6.4
6.2
6.4
4.9 - 5.2
Source: Staisics Indonesia
*Bank Indonesia’s Projecion
investment such as machinery and transportaion
equipment is projected to record high growth in 2010,
for which one of the key drivers is more afordable credit
due to declining interest rates. Indicaions of improved
investment performance has been conirmed by the
increasing in producion capacity uilizaion by the
industrial sector. Furthermore, construcion investment in
2010 is forecasted to also expand in line with the ongoing
of government simulus for infrastructure projects and
rampant property development. Indicaions of increased
construcion investment are relected in higher cement
consumpion and soaring stock prices for companies
engaged in the infrastructure sector.
Household consumpion is expected to remain strong to
support domesic economic acivity. This is supported
by sustained level of consumer conidence measured by
the Consumer Conidence Index from Bank Indonesia’s
Consumer Survey. Other factors that bolster strong
household consumpion include a rise in income driven by,
among others, improved export performance. The nonfood consumpion such as retail goods and motor vehicles,
is projected to strengthen. This is supported by the
Retail Sales Index that shows an upswing in sales of food,
clothing, appliances and others. Therefore, household
consumpion in 2010 is esimated to grow in the range of
4.5% - 5.0%.
Government consumpion is expected to grow slower
at around 5.9% - 6.9% in 2010, atributable to a lower
adjustment of basic salary of civil servants in 2010
compared to previous years. In addiion, limited
178
CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
government consumpion is also related with the balanced
distribuion of funds to local regions that will not increase
signiicantly.
Demand for imported goods is projected to rise to
bring imports to grow at around 12.5% - 13.5% in 2010.
The expansion in imports will be driven by stronger
performance in export, beter purchasing power as well as
stronger investment acivity, among others.
Aggregate Supply Outlook
The global economic recovery process will trigger
opimism in domesic economic acivity, which will further
encourage economic sectors in Indonesia towards a phase
of increasing growth (Table 6.4).
In 2010, industrial sector performance is projected to
improve in line with the domesic and global economic
recovery. The industrial sector is predicted to grow
by 4.1% - 4.4% in 2010 supported by a variety of
breakthroughs in real sector policy, among others, the
Government’s plan to provide incenives for raw material
suppliers of domesic industry. The incenive package
is expected to atract foreign investors to Indonesia,
paricularly in terms of developing naional downstream
industries. In addiion, the Government also plans to
revitalize several industrial sectors such as the cement
industry, ferilizer, sugar and CPO. This revitalizaion
plan is intended to anicipate demand for products from
these industries. In 2010, the industrial sector will face
challenges stemming from the implementaion of AC-FTA.
Products from ASEAN countries and China will become
strong compeitors to the domesic market, especially
the iron-steel industry, petrochemicals, yarns and fabrics,
horiculture, food and beverages, footwear, electronics,
cables, syntheic ibers, and toys. In anicipaion of a
less favorable climate post-AC-FTA, the Government
will coninue to promote measures to enhance the
compeiiveness of naional industries through policies
that are essenially designed to overcome botlenecks
(obstrucions) in the industrial sector. However, in the
short term there is a discourse on the Government to use
the non-tarif policy to protect naional industries. Such
policies include regulaions to comply to the Indonesian
Naional Standards (INS) for products available in
Indonesia, the use of the halal label as well as labels in
the Indonesian language, ighter controls on imports of
manufacturing products at six ports, the harmonizaion on
tarif to ensure that customs duies on imports of inished
goods are greater than the raw materials, especially for
products included on the High Sensiive List (HSL) such as
sugar, rice, corn and soybean. In addiion, the government
also sought to delay the implementaion of a proposed
0% import duty at 228 tarif posts that are considered
suiciently sensiive.
In accordance with the strengthening global and domesic
economic recovery in 2010, the trade, hotels and
restaurants sector is projected to grow by 5.1% - 5.5%,
encouraged primarily by stronger public purchasing power
as relected by robust household consumpion. Stronger
public purchasing power provides a posiive impetus
to manufacturing industry performance and, in turn,
boosts wholesale and retail trade acivity. In addiion,
lower lending rates serve as a inancing incenive for
this sector. Meanwhile, performance of the hotels and
restaurants sub-sector will also increase in line with the
global economic recovery, supported by various eforts to
improve the tourism organized by the Government. The
Government targets 7 million foreign tourists in 2010; up
from 6.5 million in 2009.
The agricultural sector in 2010 is projected to grow in
the range of 4.1% - 4.4%. Delays in the 2010 cropping
season as a result of a stronger El Nino is expected to
afect agricultural sector performance, in paricular rice.
Despite the delays, the food stock is expected to be
maintained. Surplus food producion in 2009 will be used
to cover the addiional food requirement in 2010. In order
to support agricultural sector development, especially
in the context of maintaining food stock and food selfsuiciency, the Government will promulgate an array of
regulaions on agrarian reform in 2010. Through agrarian
reform, the Government aims to increase farmers’ land to
a minimum of two hectares per family. The area of land
available amounted to totals 7.13 million hectares, which
is designated for the expansion of crop farming.
The transportaion and communicaions sector is
projected to record relaively expansive growth in the
range of 12.6% - 14.3% in 2010, in line with the beter
economic prospects. In anicipaion of increased trade
acivity (exports and imports) due to improving economic
condiions, the Government will implement a 24-hour
service for the 13 irst-class ports in Indonesia. The irst
phase of this program will be implemented at four major
ports, namely Tanjung Priok (Jakarta), Tanjung Perak
(Surabaya), Belawan (Medan) and Makassar. The new
24-hour service will facilitate the low of goods in and
out of Indonesia and reduce waiing ime for docked
and unloading ships. For air transport, the Government
has made arrangements for pioneers air transportaion
service as well as reining the contract system from
one year to three years. In addiion, the Department of
Transportaion will also increase the pioneering air service
subsidy in 2010 serving 118 routes in 15 provinces. In
the communicaions sub-sector, internet development
is projected to grow rapidly, considering the large
potenial internet market in relaion to the relaively small
percentage of domesic internet users (around a mere 2.5
million) compared to the total populaion of Indonesia.
In 2010, growth in the construcion sector is projected
to surpass that of 2009, which is in the range of 8.1% 8.5%. Strong government support for infrastructure will
drive construcion sector performance. This is in line with
the Government commitment to support infrastructure
development in order to catalyze economic development.
Infrastructure development projects are included in the
RPJMN priority program 2010-2014. To this end, the
Government is planning to roll out economic simulus
packages to promote the development of naional
infrastructure. The acceleraing development program
of electricity infrastructure Phase II of the 10,000 MW
project will commence in 2010.
Heightened economic acivity in 2010 will also boost
acivity in the inancial sector, leasing and corporate
services. In the real estate sector, oice leasing began to
gain momentum, especially for small space oice leasing.
Furthermore, in order to seize the market, research
aciviies, product promoion and exhibiions are expected
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
179
to enliven business sector. Consequently, the related
industries that engaged in the growing sector will also
expand as well as their contribuion to the sector. Against
this backdrop, growth of the inancial sector, leasing and
services in 2010 is forecast to achieve 4.9% - 5.3%.
Balance of Payments (BoP) Outlook
The rapid global economic recovery brings posiive impact
to the balance of payments projecion in 2010. Coninuing
its performance in 2009, the balance of payments is
projected to maintain a surplus. On the commodiies
market, a combinaion of strong external demand
and rising commodity prices will sustain the export
performance. From the domesic side, the global economic
growth will be transmited into the growing of investment
and consumpion aciviies that push up the value of
imports. In terms of capital and inancial transacions, the
deleveraging process that expected to abate and the global
monetary that expected to remain accomodaive, will
spur short-term inlows in the form of porfolio, although
on a more limited scale compared to previous periods.
Consequently, the balance of payments in 2010 is projected
to run a surplus of USD12.5 billion, therefore, with foreign
exchange reserve at the end of 2010 ammouning to total
USD 78.5 billion; equivalent to 6.4 months of imports and
foreign debt repayments (Table 6.5).
Table 6.5 Balance of Payments Outlook in 2010
millions of USD
Items
I. Current Account
A. Goods, net (Trade Balance)
2009
2010**
10,582
4,996
35,197
33,574
- Export, fob.
119,513
139,737
- Import, fob.
-84,316
-106,163
1. Non-Oil and Gas
26,860
22,169
- Export
99,063
113,734
- Import
-72,203
-91,565
8,337
11,404
2. Oil and Gas
- Export
20,451
26,003
- Import
-12,113
-14,599
B. Services, net
-14,155
-16,101
C. Income, net
-15,331
-17,496
D. Current Transfer, net
II. Capital and Financial Account
A. Capital Transacion
B. Financial Transacion
4,871
5,018
3,673
7,500
96
161
3,577
7,339
1. Direct Investment
2,313
5,971
2. Porfolio Investment
10,103
6,682
3. Other Investment
III. Total (I + II)
-8,838
-5,314
14,255
12,495
IV. Net Errors and Omission
-1,749
0
V. Overall Balance (III + IV)
12,506
12,495
VI. Reserve and Related Items*)
-12,506
-12,495
-12,506
-12,495
0
0
66,105
78,464
6.5
6.4
A. Reserve Asset Changes
B. IMF Purchases
Memorandum:
Internaional Reserve
(in months of imports and oicial foreign debt repayment)
* (-) surplus; (+) deicit
** Bank Indonesia’s projecion
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CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
Current Account
The current account is expected to record a surplus of
USD5.0 billion in 2010, which is about 0.8% of GDP. This
is mainly atributable to strong exports that are projected
to increase in line with an upswing in external demand
and soaring global commodity prices. Exports of goods
are projected to reach USD140 billion in 2010. By the
type of commodiies, the export performance is derived
from natural resource-based commodiies, as well as
manufacturing commodiies, which is in line with the
recovery in economic condiions in developed countries.
Meanwhile, the posiive global economic growth will also
be transmited to the domesic economy by increasing
absorpion of the economy. Increased economic acivity
will encourage the use of raw materials, capital goods and
consumpion, including goods that cannot be provided
domesically. As a result, imports of goods are forecasted
to reach 106 billion US dollars in 2010.
Meanwhile, the transacion on service, income and
current transfers in 2010 will record a deicit of
USD29 billion. Rising oil prices and trading aciviies
will inluence the deicit in the balance of services,
paricularly transportaion services. Rising oil prices
will also escalate the deicit in income account, in line
with increased producion sharing revenue for foreign
companies engaged in the oil and gas sector. The deicit
in income account will be exacerbated by the increased of
government foreign debt interest payments. Meanwhile,
the surplus in current transfers will slightly increase
compared to the previous period. Amid improving global
economic condiions, the foreign exchange earnings from
foreign tourists and remitances from Indonesian workers
overseas (TKI) will become a potenial alternaive source
of foreign exchange.
Capital and Financial Account
The capital and inancial account will record a surplus
of about 7.5 billion US dollars in 2010 supported by the
upbeat domesic economic outlook and accommodaive
global monetary policy. Opimism on future economic
prospects, which is also supported by rising commodity
prices, will atract capital inlows in the form of direct
investment, to the oil/gas sector and non-oil/gas sector.
In terms of porfolio investment, the surplus is projected
to persist. Porfolio investment will coninue to surge due
to the accommodaive global monetary policy and posiive
economic outlook. Furthermore, government plans to
issue internaional bonds in 2010 will also posiively
support the porfolio investment.
The last component in the capital and inancial accounts,
that is, other investment, is predicted to be remain
in deicit although lower than the deicit in 2009. In
accordance with the increase in government spending and
investment in 2010, domesic inancing and funding that
stems from foreign debt in the form of credit programs
and projects will exceed that of 2009. Likewise in the
private sector, credit in the form of non-FDI is expected to
surpass that of 2009, in line with the growing requirement
for domesic inancing. The improving economic outlook
and soaring commodity prices may further encourage a
larger low of private funds.
Rupiah Exchange Rate Outlook
In general, the Rupiah during 2010 will remain stable
in a range that is slightly stronger than during 2009.
Rupiah appreciaion will be bolstered by solid economic
fundamentals amid more conducive external condiions.
Rupiah stability in 2010 will be supported by the balance of
supply and demand in the foreign exchange market, in line
with improving risk appeite of global investors for domesic
inancial assets as well as increasing in non-oil exports.
However, potenial pressures will remain on the rupiah
in 2010, both externally and domesically. From the
external side, improving global economic condiions and
rising commodity prices will increase the potenial risk
of inlaionary pressures in 2010, which in turn can afect
rupiah performance. From the domesic side, the beter
economic outlook will spur import demand, resuling
in stronger demand for US dollars. In this regard, Bank
Indonesia will coninue to monitor the various risk factors
that can put pressure on the rupiah as well as managing
rupiah exchange rate volaility by balancing demand and
supply on the foreign exchange market. In addiion, Bank
Indonesia will also enhance the efeciveness of prudenial
regulaions and monitoring foreign exchange transacions.
Inlaion Outlook
In 2010, headline inlaion (IHK) is predicted to remain
under control within the target range of 5% ± 1%. From
the external side, inlaionary pressures will principally
emanate from rising inlaion in trading partner countries
in line with the global economic recovery and rising
internaional commodity prices, in paricular the global
Economic Outlook and Bank Indonesia’s Policy Direcion | CHAPTER VI
181
oil price. From the domesic side, inlaionary pressures
in 2010 will originate from expansive economic growth
in 2010, which is indicated by a slight increase in total
capacity uilizaion. Meanwhile, the inlaion expectaion
in 2010 will sill decline, associated with the low
realizaion on inlaion in 2009, the stable rupiah and the
absent of the strategic administraive price adjustment
from the government.
In terms of non-fundamentals aspects, higher inlaionary
pressures are predicted to emerge from hikes in several
non-strategic administered prices. The rise in administered
inlaion is associated with the government plans to
adjust the prices of non-strategic goods and services.
Meanwhile, the volaile food inlaion is projected to
increase compared with that of 2009, but remain below
its historical average. The threat of El Nino, which is
feared will raise internaional food commodity prices, is
esimated to have a minimal impact on domesic food
prices. This is conirmed by fairly wide discrepancies in
several domesic food prices compared to internaional
prices, which implies that domesic commodity prices are
not elasic to changes in internaional prices. The relaively
low volaile food inlaion is also supported by manageble
supply and distribuion of food, paricularly staples.
Banking Outlook
In general, the Indonesian banking prospect is posiive,
due to robust domesic economic growth which exceeds
that of most other countries. In terms of capital adequacy,
the banking which dominate Indonesia’s inancial sector,
is projected to be suicently resilience. In terms of bank
intermediaion, the banks commitment to coninue
adjusing lending and saving rates coupled with improving
economic prospects will precipitate an increase in bank
lending. Accordingly, bank credit will grow by around
17-20% in 2010. Bank Indonesia will coninue to monitor
the banking system and coninue eforts to enhance the
banking eiciency, which in turn will ameliorate the bank
intermediary funcion.
In terms of risk, the banking resilience in 2010 will remain
adequate to absorb the various potenial risks. This is
supported by the products of naional banking which
are relaively convenional, which in turn will minimize
problems to a lesser extent compare to those faced by
their foreign counterparts. However, external factors
can sill negaively afect the banking system if not fully
anicipated and prevenive measures are not taken.
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CHAPTER VI | Economic Outlook and Bank Indonesia’s Policy Direcion
The posiive bank outlook will also enhanced by the
implementaion of several future agendas such as
operaional risk under the Basel II framework and the
implementaion of PSAK No. 50 and 55, which are
considered to potenially improve market conidence.
Concerning the implementaion of Basel II, one of the
key issues is the impact of applying capital charges for
operaional risk on bank capital. PSAK No.50 and 55
relate to among others the implementaion of marking to
market for all assets and liabiliies of inancial insituions,
including banks. In general, the implementaion of those
agendas will heighten market conidence on Indonesia
in the future. To ensure the smooth implementaion
of Basel II and the two accouning standards, efecive
communicaion with stakeholders and other relevant
paries is necessary to harmonize all viewpoints regarding
the beneits to inancial system stability as a whole.
Non-Bank Financial Market Outlook
In line with the ongoing global economic recovery and
a relaively sound domesic macro and micro indicators,
non-bank inancial market performance in 2010 is
expected to coninue improving. Concomitantly, growth
and innovaion in inancial product will enliven non-bank
inancial market development in the future.
In the stock market, the Jakarta Composite Index (JCI) has
the potenial to reach its highest historical level in 2010.
This is based on the beter inancial reporing prospects,
the larger capital spending plan and higher foreign interest
related to a more conducive economic performance. Due
to the growing composiion of commodity-based sectors
on the stock market, soaring global commodity prices will
have a posiive impact on the stock market. Consequently,
stock trading aciviies as a whole are also projec