ProdukHukum BankIndonesia
REPUBLIC OF INDONESIA
Recent Economic Developments
August, 2010
Published by Investors Relations Unit – Republic of Indonesia
Address
Tel
Facsimile
E-mail
Website
Bank Indonesia
International Directorate
Investor Relations Unit
Sjafruddin Prawiranegara Building, 5th floor
Jalan M.H. Thamrin 2
Jakarta, 10110 Indonesia
+6221 381 8316
+6221 381 8319
+6221 381 8298
+6221 350 1950
Elsya Chani: elsya_chani@bi.go.id
Firman Darwis: firman_darwis@bi.go.id
Dyah Miranti Wulandari: dyah_mw@bi.go.id
www.bi.go.id/iru
Table of Contents
I. Executive Summary
II. Indonesia Story: as Acknowledged by Rating Agencies
III. Positive Macroeconomic Developments
Executive Summary
The economy grew by 6.2% in Q2-2010. The whole year it forecasted to grow within the range of 5.5%-6.0% by the end of
2010, and estimated to reach the upper limit projection, bolstered by Indonesia's external sector performance, investment, and
consumer spending.
The latest macro economic indicators supported us to believe that the economy, in line with the development in the global
economy, is steadily moving on an upward trend accompanied by financial system stability. It bolstered Indonesia's external sector
performance and investment, with domestic recovery gaining strength as the economy is no longer reliant solely on consumption.
The optimism also supported by the latest development in the perception indicators such as a sovereign rating upgrade to
investment grade by Japan Credit Rating Agency, narrowing yield spread, lower CDS, improving Credit Risk Classification by the
OECD, etc. An assessment of the economic developments during July 2010 points to improvement in the domestic economy amid
persistent risks of global uncertainties.
Japan Credit Rating Agency (JCR) on July 13 th 2010 upgraded Indonesia's sovereign rating to Investment Grade, from BB+ to
BBB-. This upgrade was the first investment grade for Indonesia in 13 years. Currently, the Republic of Indonesia’s sovereign
rating BB+ /Stable from Fitch, BB+/Stable from R&I, BB/Positive from S&P, and Ba2/positive from Moody’s.
On the monetary policy front, the latest Board of the Governors Meeting of Bank Indonesia convened in August 2010 resolved to
hold the policy rate, BI Rate at 6.5%. For the time being, the current rate considers adequate to safeguard future inflation
expectations. However, Bank Indonesia is taking careful note of the recent onset of higher inflationary pressure and will pursue the
necessary monetary and banking policy actions to ensure that future inflation remains on track with the established target at
5%+1% for 2010 and 2011. Bank Indonesia will soon respond with measures to tighten liquidity management without disruption to
the bank intermediation function, implemented through changes in the statutory reserve requirement.
Regarding prices, the Board of the Governors is closely monitoring the onset of rising inflationary pressure. July 2010
recorded fairly brisk CPI inflation at 1.57% (mtm) or 6.22% (yoy). Inflationary pressure was driven mainly by higher inflation in the
foodstuffs category and particularly rice, due to seasonal uncertainties. In contrast, pressure from core inflation has been kept at
modest levels as a result of adequate supply-side response to increases in demand and the appreciating trend in the exchange
4
rate.
Executive Summary
Overall, banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the wellmaintained Capital Adequacy Ratio of 17.4%, and safe level of Non-Performing Loans at 3.3%, as of end of June 2010. By end of
2010, lending growth is projected to reach 22%-24%. Up to July 2010, banking industry has reached the remarkable lending
growth at 19.6%. Improved market confidence also bring more optimism to further banking intermediation function.
Going forward, BI will keep a close watch on bank lending growth to keep it within the range envisaged in the Bank Business
Plans. Special efforts will be devoted to increase credit for productive purposes. The purpose of these measures is to ensure that
demand-side increase will be adequately offset on the supply-side and thus not generate excessive inflationary pressure.
Balance of payments on Q2-2010 has posted a significant surplus of US$5.4 billion. The surplus was contributed from both
the current account and capital and financial account. The current account posted a US$1.8 billion surplus, bolstered from upbeat
performance in non-oil/gas trade balance, the gas trade balance and the current transfers balance. The ongoing world economic
recovery has strengthened non-oil/gas exports with growth outperforming non-oil/gas imports. The capital and financial account
recorded a US$3.3 billion surplus distributed fairly among all major components. renewed growth in capital inflows in response to
the upward revision of the credit rating outlook and more upbeat international perceptions.
International reserves. By end of Q2-2010, the foreign exchange reserves had increased to USD76.3 billion. The reserves
continued to increase to reach USD78.8 billion on 30 July 2010, equivalent to 6.03 months of imports and servicing of official
external debt. This helped the rupiah to maintain stable movement throughout July 2010 with an appreciating trend.
5
Indonesia Story: as Acknowledged by Rating Agencies
Resilient economy, which impressively navigates through the global crisis and with growing confidence in economic
outlook, the Republic continued to receive good reviews, especially from Rating agencies
Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from
BB+ to BBB- with stable outlook. The first upgrade to reach investment grade in the last 13 years reflects enhanced
political and social stability, sustainable economic growth , alleviated public debt burden as a result of prudent fiscal
management, reinforced resilience to external shocks stemming from the foreign reserves accumulation and an improved
capacity for external debt management and efforts made by the current administration to outline the framework to deal with
structural issues such as infrastructure development.
Moody’s Investors Service (June 21, 2010): revised the outlook of Indonesia’s foreign and local-currency Ba2
sovereign debt ratings to positive from stable. The positive outlook broadly reflects the country's capacity for sustained
strong growth, the overall stability and effectiveness of its fiscal and monetary policies, and expectations of further
improvements in the government's financial and debt position.
OECD (April 2, 2010): upgraded Indonesia’s Credit Risk Classification (CRC) from category 5 to 4. This upgrade was a
timely acknowledgement by the developed economies of the consistent economic improvement. This upgrade would
significantly improve Indonesia’s credit standing in front of the creditor countries especially the credit exports creditor countries
which eventually would decrease the debt burden.
S & P (March 12, 2010): upgraded Indonesia’s long-term foreign currency rating to BB from BB- with positive outlook
which indicates that Indonesia has big possibility to be upgraded within a year, even maybe faster. The main factor supporting
this decision is steadily improving debt metrics and growing foreign currency reserves which reduced vulnerability to shock
with continued cautious fiscal management.
Fitch Ratings (January 25, 2010): upgraded the Republic of Indonesia’s sovereign rating to ‘BB+’ from ‘BB’ with
stable outlook The rating action reflects Indonesia’s relative resilience to the severe global financial stress test of 2008-2009
which has been underpinned by continued improvements in the country’s public finances.
6
Positive Macroeconomic Developments
Real Sector: Indonesia Development Policy
Indonesia Development Policy is based on a ‘Triple Track Strategy’
1st
2nd
Pro-Growth:
Increase Growth by prioritizing export and investment
Pro-Job :
Boost up the real sector in order to create jobs
Pro-Poor:
3rd
8
Revitalize agriculture, forestry, maritime, and rural economy
to reduce poverty
Source: Coordinating Ministry for Economic Affairs
Economic Growth Sustained
Indonesia’s economic growth is steadily moving on an upward trend.
Economic data up to end of Q1-2010 supported us to believe that the economy, in line with the development in the global
economy, is moving toward better development than we previously expected on the beginning of this year. The optimism also
supported by latest development in the perception indicators such as yield spread, sovereign rating, CDS, CRC-OECD, etc. On
the backdrops, in the end of Q1-10, BI revised economic growth outlook for 2010 and 2011 to be consecutively within the
range of 5.5-6.0% and 6.0-6.5%.
In the 2nd quarter of 2010, the Indonesian economy grew 6.2% (yoy), higher than forecasted at 6.0% and higher than
previous quarter (5.7%). The growth driven mainly from investment and consumer spending. The economy is projected to grow
within the range of 5.5-6.0 % for 2010, and is forecasted to reach the upper limit projection, bolstered by Indonesia's rising
export performance, investment, and continued strength of consumption.
Sustainable Economic Growth
6.3
7.0
6.2
6.0
5.7
5.5
6.0
4.5
5.0
4.0
3.0
2.0
1.0
0.0
2006
(*): Preliminary
Source: Ministry of Finance, BPS.
9
2007
2008
2009
Q1-2010
Q2-2010
Source: Bank Indonesia.
Inflation
Inflation Expectation – Consensus Forecast
Inflation
20
Monthly (m-t-m)
Annually (y-o-y)
15
10
9.17
6.71
5.27
6.22
5
1.57
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Okt
Nov
Des
Jan
Feb
Mar
Apr
May
Jun
Jul
0
-5
10
2006
2007
2008
2009
2010
Stable rupiah is expected to damp pressure from higher commodity prices and pave the way for lower inflation expectation. From domestic side, in
addition to administered price, subtle inflationary pressure would also be the result from higher demand along with higher economic growth while production
capacity remain adequate to respond to higher demand. Those conditions is projected to be reflected in inflation rate at 5+1% in 2010.
BI is closely monitoring the onset of rising inflationary pressure. July 2010 recorded fairly brisk CPI inflation at 1.57% (mtm) or 6.22% (yoy). Inflationary
pressure was driven mainly by higher inflation in the foodstuffs category and particularly rice, due to seasonal uncertainties. This pressure is considered
temporary. In contrast, pressure from core inflation has been kept at modest levels as a result of adequate supply-side response to increases in demand and
the appreciating trend in the exchange rate. Accordingly, the most important factors in mounting inflation are seasonal, requiring action to safeguard against
increased expectations of future inflation.
Future inflationary pressure until end of 2010 is predicted mainly from higher electricity tariff, upcoming Ramadhan festivities and higher food prices
associated with seasonal uncertainties.
Going forward in 2011, inflationary pressures could be spurred by an increasingly limited capacity. BI will keep a close watch on the rising inflationary
pressure and make the necessary adjustments to monetary policy responses to ensure that inflation remains on track with the established targeting range at
5%+1% in 2010 and 2011.
Source: Bank Indonesia
Monetary Policy Stance
Since December 2008, BI has slashed BI Rate by 300 bps. The monetary relaxation has offered ample support for the economic
recovery process and bank intermediation.
In the latest Board Meeting convened in August 2010, BI Rate is kept at 6.50%. For the time being, BI considers the 6.5% BI
Rate adequate to safeguard future inflation expectations while closely monitoring the recent rise in inflation. However, we are
taking careful note of the recent onset of higher inflationary pressure and will pursue the necessary monetary and banking policy
actions to ensure that future inflation remains on track with the established target at 5%+1% for 2010 and 2011.
BI Rate
11
9.90
10
9
8.25
8
7
6.5
6
6.27
5
Total Overnight Inter-Bank Rate
BI rate
4
Jan-08
11
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Source: Bank Indonesia.
Balance of Payments: Q2-2010
• Indonesia's Q2-2010 balance of payments posted a significant surplus at US$5.4 billion (Q1-2010: US$6,6 billion surplus).
Key to this surplus were positive contributions from the current account and the capital and financial account.
• The current account in Q2-2010 posted a surplus of about US$1.8 billion (Q1-2010: US$2,1 billion surplus). Bolstering this surplus
was upbeat performance in the non-oil/gas trade balance, the gas trade balance and the current transfers.
• The capital and financial account in Q2-2010 recorded a surplus at US$3.3 billion (Q1-2010: US$4,3 billion surplus). All major
components of the capital and financial account, encompassing direct investment, portfolio investment and other investment,
recorded surplus.
• Accordingly, international reserves at end Q2-2010 mounted to US$76.3 billion, equivalent to 5.8 months of imports and servicing of
official external debt.
Balance of Payments
12
Source: Bank Indonesia.
Sound Banking Sector
Protected by prudential guidelines and conservative practices, the Banking Sector has weathered the global
financial turmoil and posted good performance : strong solvency, contained risk exposure and profitability
Sufficient CAR (%)
Sound level of NPLs (%)
25.0
5.0
gross NPL
4.6
net NPL
4.5
20.5
20.0
4.6
19.3
19.3
19.1
17.4
19.2
17.8
17.4
16.2
4.0
3.8
3.6
3.8
4.0
3.8
3.5
3.6
3.3
3.5
15.0
3.0
2.5
10.0
1.9
2.0
1.5
1.5
5.0
0.9
1.0
1.0
1
1
0.9
0.8
0.5
-
-
Dec-06 Dec-07 Dec-08 Dec-09 Feb-10 Mar-10
Apr-10 May-10 Jun-10
Dec-06
Dec-07
Dec-08
Dec-09
Feb-10
Mar-10
Apr-10
May-10
Jun-10
financial system stability up to July 2010 is well maintained, confirmed by Financial Stability Index (FSI) which was recorded at
1.84 (slightly lower than June 2010 at 1.87). The decrease indicates lower pressure to the financial system which mainly came
from lower credit risk and lower volatility in the financial market.
Banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the well-maintained Capital
Adequacy Ratio (17.4%, as of end of June 2010) and safe level of Non-Performing Loans at 3.3%, as of end of June 2010.
Intermediary function is steadily improving reflected from 19.6% (yoy) lending growth recorded in end of June 2010.
13
Source: Bank Indonesia.
In 2010, the Indonesian economy is positioned to grow higher
2010 Forecast
GDP Growth
is forecasted to be at
the upper limit of 5.5%6.0% projection
Main Factors Behind The Forecast
Export
is expected to chart
higher growth
Private
Consumption
will remain strong
Inflation
is estimated to be on
target at range of
5.0% 1%
14
With more upbeat confidence to the economy, exports and investment are expected to keep climbing, providing
additional boost to mounting consumption in support of higher levels of economic growth.
Global economic recovery will produce renewed acceleration in exports. The global economy is predicted to enter
an expansionary phase in 2010. Renewed momentum is predicted in the economies of Indonesia’s major trading
partners, such as China. This strengthened performance will position exports as one of the main engines of
economic growth in 2010.
Indonesian exports characteristics which is based on primary commodities has also supported export growth
acceleration.
Household consumption is forecasted to remain strong. The strengthening global economic outlook for 2010 will
given added momentum to Indonesia’s exports, which in turn will produce an overall increase in private incomes.
Higher investment will also contribute to rising incomes, thus paving the way for stronger public purchasing power.
Signs of future inflationary pressures until end of 2010 are noted, which mainly predicted from administered prices
and volatile food seasonal uncertainties. However, BI is positive to contain the inflation level within the target
range, and will keep a close watch on the rising inflationary pressure and make the necessary adjustments to
monetary policy responses to ensure that inflation remains on track with the established targeting range at 5% 1%
in 2010 and 2011.
Source: Bank Indonesia.
Main Banking Indicators
Banking system stability held firm amid the onset of renewed credit expansion (data as of June 2010)
Indicators
Earning Assets (T Rp)
- Loans (T Rp)
- Bank Indonesia Certificates (T Rp)
- Overnight Placements at BI (T Rp)
- Securities
- Inter-bank Placements
- Equity Investments
Net Interest Income (Cummulated)
Capital Adequacy Ratio (%)
Loans/Earning Assets (%)
Gross Non Performing Loans (%)
Net Non Performing Loans (%)
Return on Assets (%)
Net Interest Margin (%)
Ops. Expense/Ops. Income (%)
Loan to Deposit Ratio (%)
No. of Banks
No. of Bank Office Network
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
1,353.2
730.2
54.3
53.1
350.5
159.1
6.1
70.9
19.5
54.0
8.3
4.8
2.6
n/a
87.7
64.7
131
8,236
1,556.2
832.9
179.0
38.6
342.9
156.8
5.9
83.1
20.5
53.5
7.0
3.6
2.6
5.0
86.4
64.7
130
9,110
1,792.0
1,045.7
203.9
46.8
350.2
139.8
5.6
96.4
19.3
58.4
4.6
1.9
2.8
5.0
78.8
69.2
130
9,680
2,170.9
1,353.6
166.5
71.9
358.5
213.8
6.6
113.1
16.2
62.4
3.8
1.5
2.3
5.0
84.1
77.2
124
10,936
2,385.0
1,470.8
212.1
84.4
346.2
261.5
10.0
129.3
17.4
61.7
3.8
0.9
2.6
5.0
81.6
74.5
121
12,971
2,347.9
1,435.7
241.1
77.7
338.5
244.5
10.4
12.7
19.2
61.1
3.9
1.1
3.1
5.0
86.3
73.7
121
13,004
2,368.3
1,459.7
237.4
57.1
347.5
255.9
10.7
24.1
19.3
61.6
4.0
1.0
2.9
5.0
82.9
75.6
2,416.4
1,485.9
221.5
82.5
350.6
264.9
11.0
36.1
19.1
61.5
3.8
1.0
3.0
5.0
83.6
75.0
121
13,048
121
13,067
2419.4
1,516.0
255.4
43.2
331.7
262.7
10.4
48.2
19.2
62.7
3.5
0.9
2.9
5.0
84.8
76.5
121
13,078
May-10
2,452.4
1,561.2
253.6
47.0
333.3
246.6
10.6
60.3
17.8*
63.7
3.6
1.0
2.9
5.0
84.3
77.5
121
13,092
Jun-10
2,528.5
1,615.8
224.3
97.0
327.1
252.9
11.4
73.1
17.4
63.9
3.3
0.8
2.9
5.0
84.8
77.1
N/A
N/A
* Preliminary figures, operational risk is calculated in June 2010 figures
15
Source: Bank Indonesia
Overview of Fiscal Policy for 2009 and 2010
Continue an effective fiscal stimulus 2009 (1.4% GDP), 2010 (1.6% GDP)
Fiscal
Stimulus
Policies
Reduce debt to GDP ratio: 2009 (28%), 2010 (27%).
Actual fiscal deficit 1.6% of GDP, lower than 2.4% of GDP target deficit projected in 2009 Revised Budget
Target fiscal deficit 1.6% of GDP in 2010 Budget (budget adjustments is in ongoing discussion with the
parliament) .
Tax and
Administrative
Reforms
Continue tax policy and administration reform, reduce rate for companies, certainty of tax policy for oil
companies
Implement the 1st batch of Performance Based Budget (PBB), Civil Service Reform and Remuneration
(11 ministries) and multi-years projects
Provide fiscal space for the new government to implement additional priority programs (0.4% of GDP or
equal to USD 2.5 billion)
New Feature of
Fiscal Policy
Sufficient fiscal risk for oil and commodity prices, El-Nino, provide guarantee on land acquisition for
infrastructure projects, secure financing for power (PLN) and restructuring water services (PDAM),
domestic oil price adjustment if necessary
Export promotion (additional capital for Indonesian Exim Bank) and incentives for real sector, climate
change projects (geothermal, bio-premium, green funds)
Maintain
Social Welfare
16
Continue welfare programs (PNPM, BOS, Jamkesmas, Raskin) and provide budget for education
sector
Source: Ministry of Finance
Fiscal Policy to Promote Economic Recovery
The fiscal policy aims to promote economic recovery by providing tax incentives to various sectors and
businesses which further promotes private consumption and investment spending
Reduce income tax rate for corporations from 28% to 25%
Reduce income tax rate by 5% for listed companies with 40% public ownership
Incentives on
General
Taxation
Provide income tax facilities for businesses in specific industries or areas
Free VAT for primary agriculture products
Eliminate many luxury tax items
Provide tax and custom Incentive for special areas in accordance with law on tax and custom
Eliminate non tax revenue for export and import documentation
Provide incentive for geothermal energy through income tax and VAT
Energy
Incentives
Incentives for
Industry
17
Provide tax incentive on imports (both income tax and VAT on imports) for the oil and gas exploration
sector
Provide incentive for green energy through for VAT and subsidy
Provide custom incentives for select industries
Provide custom incentives for imported capital goods and capex
Source: Ministry of Finance
Fiscal Policy to Enhance Competitiveness
The Indonesian government continues to support the development of infrastructure and enhance the social
welfare through the effective fiscal policy and incentives for specific sectors
Infrastructure
Development
and Social
Welfare
Guarantee obligation for State Water Company and subsidy on interest for clean water, and interest
credit for State Water Company, business in Aceh / Nias, and KKPE
Subsidy and VAT for people’s housing (low income housing)
Credit for green fuel development
18
Additional funds for land clearing for toll road building
Assistance to
Support
Specific
Sectors
Guarantee for 10,000 MW electricity program and IPP
Credit for farming and cow growers
Subsidy for fertilizers, seeds and inventory
Direct assistance for seeds at competitive pricing in order to revitalize plantation, cocoa and sugar
industry
Additional capital for LPEI (Indonesian Exim Bank) to finance export related activities, including for
SMEs
Provide incentives for high performance regions (e.g. performance on financial, economics and social
welfare)
Resolution for troubled asset at SOEs and SMEs loan
Source: Ministry of Finance
Financing Trend 2005-2010
Budget Deficit Financing
19
Source: Ministry of Finance
Debt Ratio
Debt to GDP Ratio (% of GDP)
Debt Service to GDP Ratio (%)
Table of Debt to GDP Ratio
End of Year
2004
2005
GDP
2.295.826,20
2.774.281,00
3.339.480,00
3.949.321,40
4.954.028,90
5.613.441,74
6.253.789,50
Debt Outstanding (billion IDR)
- Domestic Debt (Securities)
- Foreign Debt (Loan+Securities)
1.299.504,02
653.032,15
646.471,87
1.313.294,73
658.670,86
654.623,87
1.302.158,97
693.117,95
609.041,02
1.389.415,00
737.125,54
652.289,46
1.636.740,72
783.855,10
852.885,62
1.589.780,96
836.308,91
753.472,05
1.609.314,83
868.514,53
740.800,30
Debt to GDP Ratio
- Domestic Debt to GDP Ratio
- Foreign Debt to GDP Ratio
56,60%
28,44%
28,16%
47,34%
23,74%
23,60%
2006
38,99%
20,76%
18,24%
2007
35,18%
18,66%
16,52%
2008*
33,04%
15,82%
17,22%
2009**
28,32%
14,90%
13,42%
May 10***
25,73%
13,89%
11,85%
Notes:
* = Preliminary
** = Very Preliminary
*** = Very Very Preliminary, GDP number based on Budget 2010 Assumption
20
[Outstanding as of May, 2010]
Source: Ministry of Finance
Recent Economic Developments
August, 2010
Published by Investors Relations Unit – Republic of Indonesia
Address
Tel
Facsimile
Website
Bank Indonesia
International Directorate
Investor Relations Unit
Sjafruddin Prawiranegara Building, 5th floor
Jalan M.H. Thamrin 2
Jakarta, 10110 Indonesia
+6221 381 8316
+6221 381 8319
+6221 381 8298
+6221 350 1950
Elsya Chani: elsya_chani@bi.go.id
Firman Darwis: firman_darwis@bi.go.id
Dyah Miranti Wulandari: dyah_mw@bi.go.id
www.bi.go.id/iru
Table of Contents
I. Executive Summary
II. Indonesia Story: as Acknowledged by Rating Agencies
III. Positive Macroeconomic Developments
Executive Summary
The economy grew by 6.2% in Q2-2010. The whole year it forecasted to grow within the range of 5.5%-6.0% by the end of
2010, and estimated to reach the upper limit projection, bolstered by Indonesia's external sector performance, investment, and
consumer spending.
The latest macro economic indicators supported us to believe that the economy, in line with the development in the global
economy, is steadily moving on an upward trend accompanied by financial system stability. It bolstered Indonesia's external sector
performance and investment, with domestic recovery gaining strength as the economy is no longer reliant solely on consumption.
The optimism also supported by the latest development in the perception indicators such as a sovereign rating upgrade to
investment grade by Japan Credit Rating Agency, narrowing yield spread, lower CDS, improving Credit Risk Classification by the
OECD, etc. An assessment of the economic developments during July 2010 points to improvement in the domestic economy amid
persistent risks of global uncertainties.
Japan Credit Rating Agency (JCR) on July 13 th 2010 upgraded Indonesia's sovereign rating to Investment Grade, from BB+ to
BBB-. This upgrade was the first investment grade for Indonesia in 13 years. Currently, the Republic of Indonesia’s sovereign
rating BB+ /Stable from Fitch, BB+/Stable from R&I, BB/Positive from S&P, and Ba2/positive from Moody’s.
On the monetary policy front, the latest Board of the Governors Meeting of Bank Indonesia convened in August 2010 resolved to
hold the policy rate, BI Rate at 6.5%. For the time being, the current rate considers adequate to safeguard future inflation
expectations. However, Bank Indonesia is taking careful note of the recent onset of higher inflationary pressure and will pursue the
necessary monetary and banking policy actions to ensure that future inflation remains on track with the established target at
5%+1% for 2010 and 2011. Bank Indonesia will soon respond with measures to tighten liquidity management without disruption to
the bank intermediation function, implemented through changes in the statutory reserve requirement.
Regarding prices, the Board of the Governors is closely monitoring the onset of rising inflationary pressure. July 2010
recorded fairly brisk CPI inflation at 1.57% (mtm) or 6.22% (yoy). Inflationary pressure was driven mainly by higher inflation in the
foodstuffs category and particularly rice, due to seasonal uncertainties. In contrast, pressure from core inflation has been kept at
modest levels as a result of adequate supply-side response to increases in demand and the appreciating trend in the exchange
4
rate.
Executive Summary
Overall, banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the wellmaintained Capital Adequacy Ratio of 17.4%, and safe level of Non-Performing Loans at 3.3%, as of end of June 2010. By end of
2010, lending growth is projected to reach 22%-24%. Up to July 2010, banking industry has reached the remarkable lending
growth at 19.6%. Improved market confidence also bring more optimism to further banking intermediation function.
Going forward, BI will keep a close watch on bank lending growth to keep it within the range envisaged in the Bank Business
Plans. Special efforts will be devoted to increase credit for productive purposes. The purpose of these measures is to ensure that
demand-side increase will be adequately offset on the supply-side and thus not generate excessive inflationary pressure.
Balance of payments on Q2-2010 has posted a significant surplus of US$5.4 billion. The surplus was contributed from both
the current account and capital and financial account. The current account posted a US$1.8 billion surplus, bolstered from upbeat
performance in non-oil/gas trade balance, the gas trade balance and the current transfers balance. The ongoing world economic
recovery has strengthened non-oil/gas exports with growth outperforming non-oil/gas imports. The capital and financial account
recorded a US$3.3 billion surplus distributed fairly among all major components. renewed growth in capital inflows in response to
the upward revision of the credit rating outlook and more upbeat international perceptions.
International reserves. By end of Q2-2010, the foreign exchange reserves had increased to USD76.3 billion. The reserves
continued to increase to reach USD78.8 billion on 30 July 2010, equivalent to 6.03 months of imports and servicing of official
external debt. This helped the rupiah to maintain stable movement throughout July 2010 with an appreciating trend.
5
Indonesia Story: as Acknowledged by Rating Agencies
Resilient economy, which impressively navigates through the global crisis and with growing confidence in economic
outlook, the Republic continued to receive good reviews, especially from Rating agencies
Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from
BB+ to BBB- with stable outlook. The first upgrade to reach investment grade in the last 13 years reflects enhanced
political and social stability, sustainable economic growth , alleviated public debt burden as a result of prudent fiscal
management, reinforced resilience to external shocks stemming from the foreign reserves accumulation and an improved
capacity for external debt management and efforts made by the current administration to outline the framework to deal with
structural issues such as infrastructure development.
Moody’s Investors Service (June 21, 2010): revised the outlook of Indonesia’s foreign and local-currency Ba2
sovereign debt ratings to positive from stable. The positive outlook broadly reflects the country's capacity for sustained
strong growth, the overall stability and effectiveness of its fiscal and monetary policies, and expectations of further
improvements in the government's financial and debt position.
OECD (April 2, 2010): upgraded Indonesia’s Credit Risk Classification (CRC) from category 5 to 4. This upgrade was a
timely acknowledgement by the developed economies of the consistent economic improvement. This upgrade would
significantly improve Indonesia’s credit standing in front of the creditor countries especially the credit exports creditor countries
which eventually would decrease the debt burden.
S & P (March 12, 2010): upgraded Indonesia’s long-term foreign currency rating to BB from BB- with positive outlook
which indicates that Indonesia has big possibility to be upgraded within a year, even maybe faster. The main factor supporting
this decision is steadily improving debt metrics and growing foreign currency reserves which reduced vulnerability to shock
with continued cautious fiscal management.
Fitch Ratings (January 25, 2010): upgraded the Republic of Indonesia’s sovereign rating to ‘BB+’ from ‘BB’ with
stable outlook The rating action reflects Indonesia’s relative resilience to the severe global financial stress test of 2008-2009
which has been underpinned by continued improvements in the country’s public finances.
6
Positive Macroeconomic Developments
Real Sector: Indonesia Development Policy
Indonesia Development Policy is based on a ‘Triple Track Strategy’
1st
2nd
Pro-Growth:
Increase Growth by prioritizing export and investment
Pro-Job :
Boost up the real sector in order to create jobs
Pro-Poor:
3rd
8
Revitalize agriculture, forestry, maritime, and rural economy
to reduce poverty
Source: Coordinating Ministry for Economic Affairs
Economic Growth Sustained
Indonesia’s economic growth is steadily moving on an upward trend.
Economic data up to end of Q1-2010 supported us to believe that the economy, in line with the development in the global
economy, is moving toward better development than we previously expected on the beginning of this year. The optimism also
supported by latest development in the perception indicators such as yield spread, sovereign rating, CDS, CRC-OECD, etc. On
the backdrops, in the end of Q1-10, BI revised economic growth outlook for 2010 and 2011 to be consecutively within the
range of 5.5-6.0% and 6.0-6.5%.
In the 2nd quarter of 2010, the Indonesian economy grew 6.2% (yoy), higher than forecasted at 6.0% and higher than
previous quarter (5.7%). The growth driven mainly from investment and consumer spending. The economy is projected to grow
within the range of 5.5-6.0 % for 2010, and is forecasted to reach the upper limit projection, bolstered by Indonesia's rising
export performance, investment, and continued strength of consumption.
Sustainable Economic Growth
6.3
7.0
6.2
6.0
5.7
5.5
6.0
4.5
5.0
4.0
3.0
2.0
1.0
0.0
2006
(*): Preliminary
Source: Ministry of Finance, BPS.
9
2007
2008
2009
Q1-2010
Q2-2010
Source: Bank Indonesia.
Inflation
Inflation Expectation – Consensus Forecast
Inflation
20
Monthly (m-t-m)
Annually (y-o-y)
15
10
9.17
6.71
5.27
6.22
5
1.57
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
Sep
Okt
Nov
Des
Jan
Feb
Mar
Apr
May
Jun
Jul
0
-5
10
2006
2007
2008
2009
2010
Stable rupiah is expected to damp pressure from higher commodity prices and pave the way for lower inflation expectation. From domestic side, in
addition to administered price, subtle inflationary pressure would also be the result from higher demand along with higher economic growth while production
capacity remain adequate to respond to higher demand. Those conditions is projected to be reflected in inflation rate at 5+1% in 2010.
BI is closely monitoring the onset of rising inflationary pressure. July 2010 recorded fairly brisk CPI inflation at 1.57% (mtm) or 6.22% (yoy). Inflationary
pressure was driven mainly by higher inflation in the foodstuffs category and particularly rice, due to seasonal uncertainties. This pressure is considered
temporary. In contrast, pressure from core inflation has been kept at modest levels as a result of adequate supply-side response to increases in demand and
the appreciating trend in the exchange rate. Accordingly, the most important factors in mounting inflation are seasonal, requiring action to safeguard against
increased expectations of future inflation.
Future inflationary pressure until end of 2010 is predicted mainly from higher electricity tariff, upcoming Ramadhan festivities and higher food prices
associated with seasonal uncertainties.
Going forward in 2011, inflationary pressures could be spurred by an increasingly limited capacity. BI will keep a close watch on the rising inflationary
pressure and make the necessary adjustments to monetary policy responses to ensure that inflation remains on track with the established targeting range at
5%+1% in 2010 and 2011.
Source: Bank Indonesia
Monetary Policy Stance
Since December 2008, BI has slashed BI Rate by 300 bps. The monetary relaxation has offered ample support for the economic
recovery process and bank intermediation.
In the latest Board Meeting convened in August 2010, BI Rate is kept at 6.50%. For the time being, BI considers the 6.5% BI
Rate adequate to safeguard future inflation expectations while closely monitoring the recent rise in inflation. However, we are
taking careful note of the recent onset of higher inflationary pressure and will pursue the necessary monetary and banking policy
actions to ensure that future inflation remains on track with the established target at 5%+1% for 2010 and 2011.
BI Rate
11
9.90
10
9
8.25
8
7
6.5
6
6.27
5
Total Overnight Inter-Bank Rate
BI rate
4
Jan-08
11
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Source: Bank Indonesia.
Balance of Payments: Q2-2010
• Indonesia's Q2-2010 balance of payments posted a significant surplus at US$5.4 billion (Q1-2010: US$6,6 billion surplus).
Key to this surplus were positive contributions from the current account and the capital and financial account.
• The current account in Q2-2010 posted a surplus of about US$1.8 billion (Q1-2010: US$2,1 billion surplus). Bolstering this surplus
was upbeat performance in the non-oil/gas trade balance, the gas trade balance and the current transfers.
• The capital and financial account in Q2-2010 recorded a surplus at US$3.3 billion (Q1-2010: US$4,3 billion surplus). All major
components of the capital and financial account, encompassing direct investment, portfolio investment and other investment,
recorded surplus.
• Accordingly, international reserves at end Q2-2010 mounted to US$76.3 billion, equivalent to 5.8 months of imports and servicing of
official external debt.
Balance of Payments
12
Source: Bank Indonesia.
Sound Banking Sector
Protected by prudential guidelines and conservative practices, the Banking Sector has weathered the global
financial turmoil and posted good performance : strong solvency, contained risk exposure and profitability
Sufficient CAR (%)
Sound level of NPLs (%)
25.0
5.0
gross NPL
4.6
net NPL
4.5
20.5
20.0
4.6
19.3
19.3
19.1
17.4
19.2
17.8
17.4
16.2
4.0
3.8
3.6
3.8
4.0
3.8
3.5
3.6
3.3
3.5
15.0
3.0
2.5
10.0
1.9
2.0
1.5
1.5
5.0
0.9
1.0
1.0
1
1
0.9
0.8
0.5
-
-
Dec-06 Dec-07 Dec-08 Dec-09 Feb-10 Mar-10
Apr-10 May-10 Jun-10
Dec-06
Dec-07
Dec-08
Dec-09
Feb-10
Mar-10
Apr-10
May-10
Jun-10
financial system stability up to July 2010 is well maintained, confirmed by Financial Stability Index (FSI) which was recorded at
1.84 (slightly lower than June 2010 at 1.87). The decrease indicates lower pressure to the financial system which mainly came
from lower credit risk and lower volatility in the financial market.
Banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the well-maintained Capital
Adequacy Ratio (17.4%, as of end of June 2010) and safe level of Non-Performing Loans at 3.3%, as of end of June 2010.
Intermediary function is steadily improving reflected from 19.6% (yoy) lending growth recorded in end of June 2010.
13
Source: Bank Indonesia.
In 2010, the Indonesian economy is positioned to grow higher
2010 Forecast
GDP Growth
is forecasted to be at
the upper limit of 5.5%6.0% projection
Main Factors Behind The Forecast
Export
is expected to chart
higher growth
Private
Consumption
will remain strong
Inflation
is estimated to be on
target at range of
5.0% 1%
14
With more upbeat confidence to the economy, exports and investment are expected to keep climbing, providing
additional boost to mounting consumption in support of higher levels of economic growth.
Global economic recovery will produce renewed acceleration in exports. The global economy is predicted to enter
an expansionary phase in 2010. Renewed momentum is predicted in the economies of Indonesia’s major trading
partners, such as China. This strengthened performance will position exports as one of the main engines of
economic growth in 2010.
Indonesian exports characteristics which is based on primary commodities has also supported export growth
acceleration.
Household consumption is forecasted to remain strong. The strengthening global economic outlook for 2010 will
given added momentum to Indonesia’s exports, which in turn will produce an overall increase in private incomes.
Higher investment will also contribute to rising incomes, thus paving the way for stronger public purchasing power.
Signs of future inflationary pressures until end of 2010 are noted, which mainly predicted from administered prices
and volatile food seasonal uncertainties. However, BI is positive to contain the inflation level within the target
range, and will keep a close watch on the rising inflationary pressure and make the necessary adjustments to
monetary policy responses to ensure that inflation remains on track with the established targeting range at 5% 1%
in 2010 and 2011.
Source: Bank Indonesia.
Main Banking Indicators
Banking system stability held firm amid the onset of renewed credit expansion (data as of June 2010)
Indicators
Earning Assets (T Rp)
- Loans (T Rp)
- Bank Indonesia Certificates (T Rp)
- Overnight Placements at BI (T Rp)
- Securities
- Inter-bank Placements
- Equity Investments
Net Interest Income (Cummulated)
Capital Adequacy Ratio (%)
Loans/Earning Assets (%)
Gross Non Performing Loans (%)
Net Non Performing Loans (%)
Return on Assets (%)
Net Interest Margin (%)
Ops. Expense/Ops. Income (%)
Loan to Deposit Ratio (%)
No. of Banks
No. of Bank Office Network
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
1,353.2
730.2
54.3
53.1
350.5
159.1
6.1
70.9
19.5
54.0
8.3
4.8
2.6
n/a
87.7
64.7
131
8,236
1,556.2
832.9
179.0
38.6
342.9
156.8
5.9
83.1
20.5
53.5
7.0
3.6
2.6
5.0
86.4
64.7
130
9,110
1,792.0
1,045.7
203.9
46.8
350.2
139.8
5.6
96.4
19.3
58.4
4.6
1.9
2.8
5.0
78.8
69.2
130
9,680
2,170.9
1,353.6
166.5
71.9
358.5
213.8
6.6
113.1
16.2
62.4
3.8
1.5
2.3
5.0
84.1
77.2
124
10,936
2,385.0
1,470.8
212.1
84.4
346.2
261.5
10.0
129.3
17.4
61.7
3.8
0.9
2.6
5.0
81.6
74.5
121
12,971
2,347.9
1,435.7
241.1
77.7
338.5
244.5
10.4
12.7
19.2
61.1
3.9
1.1
3.1
5.0
86.3
73.7
121
13,004
2,368.3
1,459.7
237.4
57.1
347.5
255.9
10.7
24.1
19.3
61.6
4.0
1.0
2.9
5.0
82.9
75.6
2,416.4
1,485.9
221.5
82.5
350.6
264.9
11.0
36.1
19.1
61.5
3.8
1.0
3.0
5.0
83.6
75.0
121
13,048
121
13,067
2419.4
1,516.0
255.4
43.2
331.7
262.7
10.4
48.2
19.2
62.7
3.5
0.9
2.9
5.0
84.8
76.5
121
13,078
May-10
2,452.4
1,561.2
253.6
47.0
333.3
246.6
10.6
60.3
17.8*
63.7
3.6
1.0
2.9
5.0
84.3
77.5
121
13,092
Jun-10
2,528.5
1,615.8
224.3
97.0
327.1
252.9
11.4
73.1
17.4
63.9
3.3
0.8
2.9
5.0
84.8
77.1
N/A
N/A
* Preliminary figures, operational risk is calculated in June 2010 figures
15
Source: Bank Indonesia
Overview of Fiscal Policy for 2009 and 2010
Continue an effective fiscal stimulus 2009 (1.4% GDP), 2010 (1.6% GDP)
Fiscal
Stimulus
Policies
Reduce debt to GDP ratio: 2009 (28%), 2010 (27%).
Actual fiscal deficit 1.6% of GDP, lower than 2.4% of GDP target deficit projected in 2009 Revised Budget
Target fiscal deficit 1.6% of GDP in 2010 Budget (budget adjustments is in ongoing discussion with the
parliament) .
Tax and
Administrative
Reforms
Continue tax policy and administration reform, reduce rate for companies, certainty of tax policy for oil
companies
Implement the 1st batch of Performance Based Budget (PBB), Civil Service Reform and Remuneration
(11 ministries) and multi-years projects
Provide fiscal space for the new government to implement additional priority programs (0.4% of GDP or
equal to USD 2.5 billion)
New Feature of
Fiscal Policy
Sufficient fiscal risk for oil and commodity prices, El-Nino, provide guarantee on land acquisition for
infrastructure projects, secure financing for power (PLN) and restructuring water services (PDAM),
domestic oil price adjustment if necessary
Export promotion (additional capital for Indonesian Exim Bank) and incentives for real sector, climate
change projects (geothermal, bio-premium, green funds)
Maintain
Social Welfare
16
Continue welfare programs (PNPM, BOS, Jamkesmas, Raskin) and provide budget for education
sector
Source: Ministry of Finance
Fiscal Policy to Promote Economic Recovery
The fiscal policy aims to promote economic recovery by providing tax incentives to various sectors and
businesses which further promotes private consumption and investment spending
Reduce income tax rate for corporations from 28% to 25%
Reduce income tax rate by 5% for listed companies with 40% public ownership
Incentives on
General
Taxation
Provide income tax facilities for businesses in specific industries or areas
Free VAT for primary agriculture products
Eliminate many luxury tax items
Provide tax and custom Incentive for special areas in accordance with law on tax and custom
Eliminate non tax revenue for export and import documentation
Provide incentive for geothermal energy through income tax and VAT
Energy
Incentives
Incentives for
Industry
17
Provide tax incentive on imports (both income tax and VAT on imports) for the oil and gas exploration
sector
Provide incentive for green energy through for VAT and subsidy
Provide custom incentives for select industries
Provide custom incentives for imported capital goods and capex
Source: Ministry of Finance
Fiscal Policy to Enhance Competitiveness
The Indonesian government continues to support the development of infrastructure and enhance the social
welfare through the effective fiscal policy and incentives for specific sectors
Infrastructure
Development
and Social
Welfare
Guarantee obligation for State Water Company and subsidy on interest for clean water, and interest
credit for State Water Company, business in Aceh / Nias, and KKPE
Subsidy and VAT for people’s housing (low income housing)
Credit for green fuel development
18
Additional funds for land clearing for toll road building
Assistance to
Support
Specific
Sectors
Guarantee for 10,000 MW electricity program and IPP
Credit for farming and cow growers
Subsidy for fertilizers, seeds and inventory
Direct assistance for seeds at competitive pricing in order to revitalize plantation, cocoa and sugar
industry
Additional capital for LPEI (Indonesian Exim Bank) to finance export related activities, including for
SMEs
Provide incentives for high performance regions (e.g. performance on financial, economics and social
welfare)
Resolution for troubled asset at SOEs and SMEs loan
Source: Ministry of Finance
Financing Trend 2005-2010
Budget Deficit Financing
19
Source: Ministry of Finance
Debt Ratio
Debt to GDP Ratio (% of GDP)
Debt Service to GDP Ratio (%)
Table of Debt to GDP Ratio
End of Year
2004
2005
GDP
2.295.826,20
2.774.281,00
3.339.480,00
3.949.321,40
4.954.028,90
5.613.441,74
6.253.789,50
Debt Outstanding (billion IDR)
- Domestic Debt (Securities)
- Foreign Debt (Loan+Securities)
1.299.504,02
653.032,15
646.471,87
1.313.294,73
658.670,86
654.623,87
1.302.158,97
693.117,95
609.041,02
1.389.415,00
737.125,54
652.289,46
1.636.740,72
783.855,10
852.885,62
1.589.780,96
836.308,91
753.472,05
1.609.314,83
868.514,53
740.800,30
Debt to GDP Ratio
- Domestic Debt to GDP Ratio
- Foreign Debt to GDP Ratio
56,60%
28,44%
28,16%
47,34%
23,74%
23,60%
2006
38,99%
20,76%
18,24%
2007
35,18%
18,66%
16,52%
2008*
33,04%
15,82%
17,22%
2009**
28,32%
14,90%
13,42%
May 10***
25,73%
13,89%
11,85%
Notes:
* = Preliminary
** = Very Preliminary
*** = Very Very Preliminary, GDP number based on Budget 2010 Assumption
20
[Outstanding as of May, 2010]
Source: Ministry of Finance