ProdukHukum BankIndonesia
REPUBLIC OF INDONESIA
Recent Economic Developments
November, 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: [email protected]
Firman Darwis: [email protected]
Dyah Miranti Wulandari: [email protected]
www.bi.go.id
Table of Content
Executive Summary
4
Improving International Perception
8
Sustainable Economic Growth
11
Balance of Payments Q3-2010
20
Prudent Fiscal Management
26
Executive Summary
Executive Summary: Preserved Macroeconomic Stability to Support Further Growth
Despite slightly lower growth rate in Q3-2010, the overall picture still shows that economic growth remains robust
bolstered by a more balanced growth structure which lead to a strong growth prospect for overall 2010
The last GDP report show a moderate Q3-2010 growth as compared to the previous quarter. This explained by
unusual weather condition as it impacted negatively into economic activities. It also explained by BPS revision of GDP data
of possible statistical discrepancies to previous GDP calculation.
For the whole 2010, economic growth is projected in the range of 6.0%-6.3%. Going forward in 2011, growth is forecasted at
6.0%-6.5%, driven by continued robust household consumption, improved external sector performance as the global
economy charts further recovery and higher investment.
Realization for both domestic and foreign direct investment up to end of Q3-2010 grew by 33.4% (yoy). In total
investment, it also shows a significant 24.1% (yoy) increase. The figures shows an increase in domestic investment , and
also promising increase of investments located outside of Java which charted 37.7% (Rp21.4 trillion), whereas on the same
period of 2009, the figures only reached 12.9% (Rp5.9 trillion). The achievements are resulted from the improvements on
investment services and better coordination between the central and regional governments.
Inflationary pressure eased during October 2010 due to deflation in volatile foods which leads the CPI inflation to 0.06%
(mtm) or an annual rate of increase at 5.67% (yoy). However, the core inflationary pressure slightly increased due to higher
international prices, led by gold and granulated sugar.
Within the financial sector, resilience remained comfortably secure during October 2010 buoyed by robust
macroeconomic conditions. Reflecting this are predominantly high levels of the capital adequacy ratio (CAR) and bank
profitability, subdued non-performing loans (NPLs) at below 5% and banking liquidity conditions well under control.
Stability in the banking system remains firm alongside steady improvement in credit growth, reaching 21.9% (yoy) credit
growth rate up to October 2010, while the credit growth for overall 2010 is forecasted at 22%-24%, in line with the business
plans prepared by banks.
5
Executive Summary: Preserved Macroeconomic Stability to Support Further Growth (cont’d)
Balance of payments in Q3-2010 posted a significant surplus of USD7 billion, higher than the preceding quarter, supported
by positive export performance as well as the surge of capital flows. Both surpluses in the current account (USD1.3 billion)
and the capital and financial account (USD6.5 billion). This resulted in a higher international reserves which further
atrengthened up to USD91.8 billion at end October 2010 (equivalent to 6.93 months of imports and official external debt service
payments), providing Indonesia with a strong cushion against external shocks.
Following a comprehensive evaluation of the performance and outlook for the current economy, at the latest Board of
Governors' Meeting convened on 4 November 2010 BI has decided to maintain the BI Rate at 6.50%. The present level of
the BI Rate is deemed consistent with achievement of the inflation target and conducive in safeguarding financial stability and
promoting banking intermediation for adequate supply-side response to accelerating demand.
Amid the sustained high rate of capital inflows and considerable excess liquidity, the Board of Governors stresses the greater
importance of managing economic liquidity.
Looking forward, Bank Indonesia will bolster management of liquidity and effectiveness of monetary policy with a monetary
and macro-prudential policy-mix to manage foreign capital inflows, stabilize the rupiah exchange rate and assure inflation
control in line with the established 5% 1% target for 2011.
6
Executive Summary: Prudent Fiscal Management
With strong foundation of economic fundamental and budgetary achievement in 2009, we are confident
toward the fiscal targets for 2010.
We continue to perform a prudent fiscal management in 2010 with strong commitment to fiscal consolidation, aiming on:
- continue declining debt-to-GDP ratio
- diversifying government debt profile,
- reducing funding reliance on international capital market.
In May 2010, the parliament approved the revised budget deficit of US$14.5 billion or 2.1% of GDP which allows for
adequate subsidies due to rising commodity prices and lower tax revenue in line with the tax incentive program to various
sectors
On the financing front, we continue to diversify our sources of financing requirement and up to September 2010, we have
completed almost 90% of our funding requirement.
Public debt is generally balanced between domestic and external sources with continued declining proportion of external
debt since 2004.
7
Improving International Perception
Improving International Perception: Acknowledged by Rating Agencies
Resilient economy, which impressively navigates through the global crisis and with growing confidence in economic outlook, the
Republic continued to receive good reviews, especially from Rating agencies
9
Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from BB+ to BBBwith stable outlook. The first upgrade to reach investment grade in the last 13 years reflects enhanced political and social stability,
sustainable economic growth , alleviated public debt burden as a result of prudent fiscal management, reinforced resilience to external
shocks stemming from the foreign reserves accumulation and an improved capacity for external debt management and efforts made by
the current administration to outline the framework to deal with structural issues such as infrastructure development.
Moody’s Investors Service (June 21, 2010): revised the outlook of Indonesia’s foreign and local-currency Ba2 sovereign debt
ratings to positive from stable. The positive outlook broadly reflects the country's capacity for sustained strong growth, the overall
stability and effectiveness of its fiscal and monetary policies, and expectations of further improvements in the government's financial and
debt position.
S & P (March 12, 2010): upgraded Indonesia’s long-term foreign currency rating to BB from BB- with positive outlook which
indicates that Indonesia has big possibility to be upgraded within a year, even maybe faster. The main factor supporting this decision is
steadily improving debt metrics and growing foreign currency reserves which reduced vulnerability to shock with continued cautious fiscal
management.
Fitch Ratings (January 25, 2010): upgraded the Republic of Indonesia’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.
Improving International Perception: Significant Raise in Perception Indices
10
World Economic Forum – The Global Competitiveness Report 2010 – 2011 (September 15, 2010) reported that Indonesia posts
an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment and improved education indictors.
Indonesia considered to successfully maintain a relatively healthy macroeconomic environment throughout the crisis. While most other
countries saw their budget deficits surge, Indonesia kept its deficit under control”
The IMD Competitive Center (May 19, 2010) reports a major improvement in Indonesia's global competitiveness, with
Indonesia moving up from 42nd to 35nd place among a total of 57 major nations surveyed worldwide. For Indonesia, the
improvement in 2010 has been achieved through significant gains in economic performance, followed by government efficiency and
infrastructure improvement.
OECD (April 2, 2010): 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.
Sustainable Economic Growth
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
12
Revitalize agriculture, forestry, maritime, and rural economy
to reduce poverty
Source: Coordinating Ministry for Economic Affairs
13
Strong Growth Prospect Continues
2010 Forecast
Main Factors Behind The Forecast
With more upbeat confidence to the economy, exports and investment are expected to keep climbing, providing
additional boost to higher consumption in support of higher levels of economic growth.
Looking forward, steady improvement is predicted in global and domestic economic developments. Therefore in
2011, the forecasted rate of growth is 6.0%-6.5%. This growth will be driven by continued robust household
consumption, improved external sector performance as the global economy charts further recovery and higher
investment in tandem with mounting domestic and external demand.
Global economic recovery will produce renewed acceleration in exports. The global economy is predicted to enter
an expansionary phase in 2010. Renewed momentum is predicted in the economies of Indonesia’s major trading
partners. The recovery will induce higher volume of international trade which will accelerate Indonesia’s export. This
strengthened performance will position exports as one of the main engines of economic growth in 2010.
Indonesian exports characteristics which is based on primary commodities has also supported export growth
acceleration.
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.
will remain strong
Higher investment will also contribute to rising incomes, thus paving the way for stronger public purchasing power.
Inflation
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.
GDP Growth
is forecasted to be at
the upper limit of 6.0%6.3% projection
Export
is expected to chart
higher growth
Private
Consumption
is estimated to be on
the upper limit of
target range of 5.0%
1%
13
Source: Bank Indonesia.
Robust and Stable Economy Continues to Chart Positive Growth
Optimistic on high growth prospects despite slight moderate growth in Q3-2010
The economy grew 3.5% (qtq) or in annual terms at the level of 5.8% (yoy) in Q3-2010, unexpectedly lower than previous quarter. The
unusual weather condition mostly explains the slower growth rate as it impacted negatively into construction, trade, and other economic
activities.
Q3-2010 growth in aggregate demand is higher than Q2-2010. The main source of growth came from exports, followed by household
consumption, gross fixed capital formation and government consumption. External demand (exports) grew slower but still quite high at
11.3% rate, relatively fit the projected rate of 11.4%.
However, despite the weather distortion, for overall 2010 the economy is strongly supported by domestic demand, both in household
consumption and investment. Latest market perception survey also shown higher consumer confidence index which leads us to maintain
our growth forecast at 6.0-6.3 % for 2010, and to further accelerated to 6.0-6.5% in 2011.
Inventories of goods in the economy continues to increase during Q3-2010, although with a lower annual growth. This is an indication of
excess supply. Growth in the supply side and demand side of this line are less likely related to the statistical discrepancy, which calculated
differently between the production side of GDP and the consumption side, which recorded a negative number. This indicates a growth rate
of domestic demand components issued by BPS, particularly household consumption, possibly higher than what actually happened
(overestimated). Related to the previous release of GDP, BPS revised GDP data since the first quarter of 2010 specifically for the
component inventory changes, statistical discrepancies and import statistics.
Sustainable Economic Growth
8%
6.3%
6%
5.7%
6.1%
5.8%
5.5%
4.5%
4%
2%
2005
14
(*): Preliminary
Source: Ministry of Finance, BPS.
2006
2007
2008
2009
Q3-2010
Source: Bank Indonesia.
Inflation: Eased Pressure
The monetary policy stance is directed towards maintaining consistently low inflation while making adequate provision for
measures to strengthen economic recovery.
Inflationary pressure eased during October 2010 due to deflation in volatile foods which leads the CPI inflation to 0.06% (mtm) or 5.35%
(ytd) representing an annual rate of increase in the CPI at 5.67% (yoy). However, the core inflationary pressure slightly increased due to higher
international prices, led by gold and granulated sugar.
Going forward, we recognized potential increases in core inflationary pressure fuelled by upward trend in international commodity prices,
continued weather anomalies, and end of year surging demand. In response, BI remains committed to manage inflation within the targeting rate at
5% 1% for 2010 and 2011 and 4.5% 1% for 2012.
Inflation
Inflation Expectation – Consensus Forecast
15
Source: Bank Indonesia
Monetary Policy Stance
In the latest Board Meeting convened on November 4 2010, Bank Indonesia decided to hold the BI Rate at 6.50%, consistent
with achievement of the inflation target and remains conducive in safeguarding financial stability and promoting bank
intermediation for supply-side response to accelerated demand.
In addition to that, the Board of Governors stresses the greater importance of managing economic liquidity In the midst of
the sustained high rate of capital inflows and considerable excess liquidity:
• The decision to raise the primary statutory reserve ratio on 1 November 2010 has been implemented smoothly without
triggering shocks in banking liquidity.
•
Looking forward, Bank Indonesia will bolster management of liquidity and effectiveness of monetary policy with a
monetary and macro-prudential policy-mix to manage foreign capital inflows, stabilize the rupiah exchange rate and
assure inflation control in line with the established 5% 1% target for 2011.
BI Rate
14%
12%
10.75%
9.50%
10%
6.50%
8%
6.50%
6%
4%
2%
0%
May-06
16
Nov-06
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
Source: Bank Indonesia.
Sound Financial Sector
Stability in the banking system remains firm alongside steady improvement in credit growth.
Sufficient CAR (%)
Sound level of NPLs (%)
25.0
5.0
20.5
20.0
19.3
19.3
17.4
16.2
15.0
19.1
4.5
gross NPL
4.0
net NPL
19.2
17.8
17.4
16.5
16.2
16.4
3.5
3.0
2.5
10.0
2.0
1.5
5.0
1.0
0.5
-
-
• Financial system stability up to October 2010 is well maintained, confirmed by Financial Stability Index (FSI) which charted 1.78,
lower than previous month and also well below the threshold (2.00) set as an early warning indicator. This indicate the robustness of
financial system. By the end of 2010, we expect FSI to be ranged between 1.45 to 2.02 with a 1.74 baseline, owing to the positive
macroeconomic outlook.
• Banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the well-maintained Capital
Adequacy Ratio (16.4%, as of end of September 2010) and safe level of gross Non-Performing Loans at 3.3%, as of end of
September 2010.
17
Source: Bank Indonesia.
Main Banking Indicators
Banking system stability held firm amid the onset of renewed credit expansion (data as of September 2010)
* Preliminary figures, operational risk is calculated in August 2010 figures
18
Source: Bank Indonesia
Balance of Payments Q3-2010
Balance of Payments Q3-2010
Balance of payments
in Q3-2010 posted a
significant surplus of
around US$7.0 billion
Balance of Payments
The current account in Q3-2010
posted a surplus of about US$1.3
billion, boosted mainly by upbeat
performance in non-oil/gas trade
balance, gas trade balance and
current transfers. The surplus
was nevertheless down from the
previous quarter (US$1.8 billion
surplus) as a result of heightened
deficits in services and income
accounts.
The capital and financial account in Q3/2010 recorded a surplus of US$6.5 billion, up from the preceding quarter (US$4.4
billion surplus). This increased surplus was explained by inflows of portfolio investment and direct investment. The surge in
portfolio investment was fuelled by excess liquidity in the global financial markets, uncertain economic prospects in the US and
Europe, and more attractive investment returns in Indonesia compared to other nations. In similar developments, foreign direct
investment expanded in response to improvement in the investment climate and stable macroeconomic conditions.
Accordingly, international reserves at end of Q3 period (September 2010) increased to US$86.6 billion, equivalent to 6.6 months
of imports and official external debt service payments. By end of October 2010, foreign exchange reserves mounted to US$91.8
billion.
20
Balance of Payments Q3–2010
21
Source: Bank Indonesia
BoP Q3-2010: Trade Balance
Non-oil and gas trade balance posted an increased surplus of US$7.2 billion in Q3-2010 (Q2-2010: US$6.8 billion surplus).
Strong world demand for resource-based commodities produced an increased surplus in the non-oil/gas trade balance.
The non-oil and gas exports recorded a positive growth (y.o.y) of 27.0% in Q3-2010, mainly due to growth of manufactured
goods. Meanwhile, the non-oil and gas imports also posted a positive growth of 33.7%, in which imports of raw material recorded
the highest growth.
The oil & gas trade balance was relatively stable as a smaller gas trade balance surplus was counterbalanced by a smaller oil
trade balance deficit.
Oil trade balance recorded a smaller deficit following a decline in both oil import volume and world oil price. In the same time,
despite of increased gas export volume, the gas trade balance posted a smaller surplus due to a decline in gas price in line with
the oil price downturn.
Trade Balance: Non-Oil & Gas
22
Trade Balance: Oil & Gas
BoP Q3-2010: Services, Income, and Current Transfers
• The services account deficit was higher than
the deficit in Q2-2010 primarily due to an
increased deficit in freight services, in line with
increased import activities.
Services, Income, and Current Transfers
• The income account deficit rose as a result of
increased interest and dividend payments to
foreign investors in correspondence with higher
volume of domestic securities held by foreigners.
• Meanwhile, current transfers surplus was slightly
increase as inflow of workers’ remittances still
higher than workers’ remittances outflow.
23
Source: Bank Indonesia
BoP Q3-2010: Financial Account
The net financial account posted a surplus of US$6.5 billion in Q3-2010, triggered by inflows of portfolio investment and
direct investment. The increasing surplus was due to a liquidity glut in the global financial market, supported by a more attractive
investment returns in Indonesia. In addition, improvements in the domestic investment climate and stable macroeconomic
conditions also contributed to the positive development.
The residents’ investment abroad (the financial account - assets) posted a net outflows of US$4.4 billion in Q3-2010, compared
to a net inflows of US$0.2 billion in Q2-2010. The stream of Indonesia-owned asset abroad was primarily explained by mounted
placement on resident deposits in overseas banks in response to higher capital inflows.
Financial Account - Total
24
Financial Account - Assets
BoP Q3-2010: Financial Account
FDI registered USD3.4 billion surplus, higher than the
previous quarter, in line with more conducive investment
climate and stable macroeconomic conditions.
FPI recorded a USD6.2 billion surplus, higher than USD1.2
billion surplus in the preceding period. Excess liquidity in the
global financial markets, uncertain economic prospects in the
US and Europe, and more attractive investment returns in
Indonesia were the main factors behind this strong inflows.
FOI recorded a USD1.3 billion surplus, in contrast with a
USD0.4 billion deficit in Q2-2010. This upturn was due to
increased foreign loan withdrawals by the banking sector to
finance its credit expansion and smaller foreign debt
repayments by the corporate sector.
Foreign Portfolio Investment
25
Foreign Direct Investment
Foreign Other Investment
Source: Bank Indonesia
Prudent Fiscal Management
State Budget 2010: Deficit & Financing
In trillion IDR
27
In billion IDR
Source: Ministry of Finance
Budget Deficit / GDP
Public Finances is a fundamental strength of the Indonesian economy; most of Indonesian ratios are strong or
stronger than its peers; Fiscal Budget deficit has traditionally been limited and remained contained in 2009. Fiscal Stimulus
did not impact much on fiscal deficit in 2009
Budget Deficit / GDP (%)
28
Budget Deficit / GDP 2009* vs. Emerging Markets Countries
Source: Ministry of Finance
Debt Figure, 2004 - 2010
Debt Composition
Debt to GDP Ratio (% of GDP)
60%
100%
57.5%
47.3%
50%
75%
39.0%
40%
35.2%
50%
50%
47%
47%
50%
50%
53%
53%
2004
2005
2006
2007
52%
47%
45%
53%
55%
2009
Aug-10
33.1%
28.3%
30%
27.0%
50%
20%
25%
10%
48%
0%
2004
2005
2006
2007
2008
2009
2010
Notes:
* = Preliminary
** = Very Preliminary
*** = Very Very Preliminary, GDP Number Based on Revised Budget 2010 Assumption
0%
Domestic Debt
2008
External Debt
Notes:
^ = Based on debt outstanding as of Aug 2010
Table of Debt to GDP Ratio
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
1,590,656.07
836,308.91
754,347.16
1,654,193.71
905,619.60
748,574.11
Debt to GDP Ratio
- Domestic Debt to GDP Ratio
- Foreign Debt to GDP Ratio
29
End of Year
2006
2007
2008*
2009**
Aug 10***
56.60%
47.34%
38.99%
35.18%
33.04%
28.34%
26.45%
28.44%
28.16%
23.74%
23.60%
20.76%
18.24%
18.66%
16.52%
15.82%
17.22%
14.90%
13.44%
14.48%
11.97%
Notes:
* = Preliminary
** = Very Preliminary
*** = Very Very Preliminary, GDP number based on Budget 2010 Assumption
[Outstanding as of Aug, 2010]
Source: Ministry of Finance
Proposed State Budget 2011: Financing Plan
30
Proposed State Budget 2011
31
Proposed State Budget 2011: Macroeconomic Indicator Projection
2010
Indicators
2011
Budget
Revised
Budget
Proposed
Economic Growth (%)
5,5
5,8
6,4
Inflation (%)
5,0
5,3
5,3
Exchange Rate (IDR/US$)
10.000
9.200
9.250
Interest Rate (3-Month) (%)
6,5
6,5
6,5
ICP (US$/barrel)
65
80
80
0,965
0,965
0,970
Oil Lifting (MBCD)
Macro Economic Policy Target 2011:
32
•
Unemployment: 7,0%
•
Poverty: 11,5% - 12,5%
•
Economic growth: 6,4%
•
Minimum investment requirement IDR 2.243,8 Trillion
•
1% economic growth will absorb 400 thousand work force
Source: Ministry of Finance
Recent Economic Developments
November, 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: [email protected]
Firman Darwis: [email protected]
Dyah Miranti Wulandari: [email protected]
www.bi.go.id
Table of Content
Executive Summary
4
Improving International Perception
8
Sustainable Economic Growth
11
Balance of Payments Q3-2010
20
Prudent Fiscal Management
26
Executive Summary
Executive Summary: Preserved Macroeconomic Stability to Support Further Growth
Despite slightly lower growth rate in Q3-2010, the overall picture still shows that economic growth remains robust
bolstered by a more balanced growth structure which lead to a strong growth prospect for overall 2010
The last GDP report show a moderate Q3-2010 growth as compared to the previous quarter. This explained by
unusual weather condition as it impacted negatively into economic activities. It also explained by BPS revision of GDP data
of possible statistical discrepancies to previous GDP calculation.
For the whole 2010, economic growth is projected in the range of 6.0%-6.3%. Going forward in 2011, growth is forecasted at
6.0%-6.5%, driven by continued robust household consumption, improved external sector performance as the global
economy charts further recovery and higher investment.
Realization for both domestic and foreign direct investment up to end of Q3-2010 grew by 33.4% (yoy). In total
investment, it also shows a significant 24.1% (yoy) increase. The figures shows an increase in domestic investment , and
also promising increase of investments located outside of Java which charted 37.7% (Rp21.4 trillion), whereas on the same
period of 2009, the figures only reached 12.9% (Rp5.9 trillion). The achievements are resulted from the improvements on
investment services and better coordination between the central and regional governments.
Inflationary pressure eased during October 2010 due to deflation in volatile foods which leads the CPI inflation to 0.06%
(mtm) or an annual rate of increase at 5.67% (yoy). However, the core inflationary pressure slightly increased due to higher
international prices, led by gold and granulated sugar.
Within the financial sector, resilience remained comfortably secure during October 2010 buoyed by robust
macroeconomic conditions. Reflecting this are predominantly high levels of the capital adequacy ratio (CAR) and bank
profitability, subdued non-performing loans (NPLs) at below 5% and banking liquidity conditions well under control.
Stability in the banking system remains firm alongside steady improvement in credit growth, reaching 21.9% (yoy) credit
growth rate up to October 2010, while the credit growth for overall 2010 is forecasted at 22%-24%, in line with the business
plans prepared by banks.
5
Executive Summary: Preserved Macroeconomic Stability to Support Further Growth (cont’d)
Balance of payments in Q3-2010 posted a significant surplus of USD7 billion, higher than the preceding quarter, supported
by positive export performance as well as the surge of capital flows. Both surpluses in the current account (USD1.3 billion)
and the capital and financial account (USD6.5 billion). This resulted in a higher international reserves which further
atrengthened up to USD91.8 billion at end October 2010 (equivalent to 6.93 months of imports and official external debt service
payments), providing Indonesia with a strong cushion against external shocks.
Following a comprehensive evaluation of the performance and outlook for the current economy, at the latest Board of
Governors' Meeting convened on 4 November 2010 BI has decided to maintain the BI Rate at 6.50%. The present level of
the BI Rate is deemed consistent with achievement of the inflation target and conducive in safeguarding financial stability and
promoting banking intermediation for adequate supply-side response to accelerating demand.
Amid the sustained high rate of capital inflows and considerable excess liquidity, the Board of Governors stresses the greater
importance of managing economic liquidity.
Looking forward, Bank Indonesia will bolster management of liquidity and effectiveness of monetary policy with a monetary
and macro-prudential policy-mix to manage foreign capital inflows, stabilize the rupiah exchange rate and assure inflation
control in line with the established 5% 1% target for 2011.
6
Executive Summary: Prudent Fiscal Management
With strong foundation of economic fundamental and budgetary achievement in 2009, we are confident
toward the fiscal targets for 2010.
We continue to perform a prudent fiscal management in 2010 with strong commitment to fiscal consolidation, aiming on:
- continue declining debt-to-GDP ratio
- diversifying government debt profile,
- reducing funding reliance on international capital market.
In May 2010, the parliament approved the revised budget deficit of US$14.5 billion or 2.1% of GDP which allows for
adequate subsidies due to rising commodity prices and lower tax revenue in line with the tax incentive program to various
sectors
On the financing front, we continue to diversify our sources of financing requirement and up to September 2010, we have
completed almost 90% of our funding requirement.
Public debt is generally balanced between domestic and external sources with continued declining proportion of external
debt since 2004.
7
Improving International Perception
Improving International Perception: Acknowledged by Rating Agencies
Resilient economy, which impressively navigates through the global crisis and with growing confidence in economic outlook, the
Republic continued to receive good reviews, especially from Rating agencies
9
Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from BB+ to BBBwith stable outlook. The first upgrade to reach investment grade in the last 13 years reflects enhanced political and social stability,
sustainable economic growth , alleviated public debt burden as a result of prudent fiscal management, reinforced resilience to external
shocks stemming from the foreign reserves accumulation and an improved capacity for external debt management and efforts made by
the current administration to outline the framework to deal with structural issues such as infrastructure development.
Moody’s Investors Service (June 21, 2010): revised the outlook of Indonesia’s foreign and local-currency Ba2 sovereign debt
ratings to positive from stable. The positive outlook broadly reflects the country's capacity for sustained strong growth, the overall
stability and effectiveness of its fiscal and monetary policies, and expectations of further improvements in the government's financial and
debt position.
S & P (March 12, 2010): upgraded Indonesia’s long-term foreign currency rating to BB from BB- with positive outlook which
indicates that Indonesia has big possibility to be upgraded within a year, even maybe faster. The main factor supporting this decision is
steadily improving debt metrics and growing foreign currency reserves which reduced vulnerability to shock with continued cautious fiscal
management.
Fitch Ratings (January 25, 2010): upgraded the Republic of Indonesia’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.
Improving International Perception: Significant Raise in Perception Indices
10
World Economic Forum – The Global Competitiveness Report 2010 – 2011 (September 15, 2010) reported that Indonesia posts
an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment and improved education indictors.
Indonesia considered to successfully maintain a relatively healthy macroeconomic environment throughout the crisis. While most other
countries saw their budget deficits surge, Indonesia kept its deficit under control”
The IMD Competitive Center (May 19, 2010) reports a major improvement in Indonesia's global competitiveness, with
Indonesia moving up from 42nd to 35nd place among a total of 57 major nations surveyed worldwide. For Indonesia, the
improvement in 2010 has been achieved through significant gains in economic performance, followed by government efficiency and
infrastructure improvement.
OECD (April 2, 2010): 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.
Sustainable Economic Growth
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
12
Revitalize agriculture, forestry, maritime, and rural economy
to reduce poverty
Source: Coordinating Ministry for Economic Affairs
13
Strong Growth Prospect Continues
2010 Forecast
Main Factors Behind The Forecast
With more upbeat confidence to the economy, exports and investment are expected to keep climbing, providing
additional boost to higher consumption in support of higher levels of economic growth.
Looking forward, steady improvement is predicted in global and domestic economic developments. Therefore in
2011, the forecasted rate of growth is 6.0%-6.5%. This growth will be driven by continued robust household
consumption, improved external sector performance as the global economy charts further recovery and higher
investment in tandem with mounting domestic and external demand.
Global economic recovery will produce renewed acceleration in exports. The global economy is predicted to enter
an expansionary phase in 2010. Renewed momentum is predicted in the economies of Indonesia’s major trading
partners. The recovery will induce higher volume of international trade which will accelerate Indonesia’s export. This
strengthened performance will position exports as one of the main engines of economic growth in 2010.
Indonesian exports characteristics which is based on primary commodities has also supported export growth
acceleration.
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.
will remain strong
Higher investment will also contribute to rising incomes, thus paving the way for stronger public purchasing power.
Inflation
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.
GDP Growth
is forecasted to be at
the upper limit of 6.0%6.3% projection
Export
is expected to chart
higher growth
Private
Consumption
is estimated to be on
the upper limit of
target range of 5.0%
1%
13
Source: Bank Indonesia.
Robust and Stable Economy Continues to Chart Positive Growth
Optimistic on high growth prospects despite slight moderate growth in Q3-2010
The economy grew 3.5% (qtq) or in annual terms at the level of 5.8% (yoy) in Q3-2010, unexpectedly lower than previous quarter. The
unusual weather condition mostly explains the slower growth rate as it impacted negatively into construction, trade, and other economic
activities.
Q3-2010 growth in aggregate demand is higher than Q2-2010. The main source of growth came from exports, followed by household
consumption, gross fixed capital formation and government consumption. External demand (exports) grew slower but still quite high at
11.3% rate, relatively fit the projected rate of 11.4%.
However, despite the weather distortion, for overall 2010 the economy is strongly supported by domestic demand, both in household
consumption and investment. Latest market perception survey also shown higher consumer confidence index which leads us to maintain
our growth forecast at 6.0-6.3 % for 2010, and to further accelerated to 6.0-6.5% in 2011.
Inventories of goods in the economy continues to increase during Q3-2010, although with a lower annual growth. This is an indication of
excess supply. Growth in the supply side and demand side of this line are less likely related to the statistical discrepancy, which calculated
differently between the production side of GDP and the consumption side, which recorded a negative number. This indicates a growth rate
of domestic demand components issued by BPS, particularly household consumption, possibly higher than what actually happened
(overestimated). Related to the previous release of GDP, BPS revised GDP data since the first quarter of 2010 specifically for the
component inventory changes, statistical discrepancies and import statistics.
Sustainable Economic Growth
8%
6.3%
6%
5.7%
6.1%
5.8%
5.5%
4.5%
4%
2%
2005
14
(*): Preliminary
Source: Ministry of Finance, BPS.
2006
2007
2008
2009
Q3-2010
Source: Bank Indonesia.
Inflation: Eased Pressure
The monetary policy stance is directed towards maintaining consistently low inflation while making adequate provision for
measures to strengthen economic recovery.
Inflationary pressure eased during October 2010 due to deflation in volatile foods which leads the CPI inflation to 0.06% (mtm) or 5.35%
(ytd) representing an annual rate of increase in the CPI at 5.67% (yoy). However, the core inflationary pressure slightly increased due to higher
international prices, led by gold and granulated sugar.
Going forward, we recognized potential increases in core inflationary pressure fuelled by upward trend in international commodity prices,
continued weather anomalies, and end of year surging demand. In response, BI remains committed to manage inflation within the targeting rate at
5% 1% for 2010 and 2011 and 4.5% 1% for 2012.
Inflation
Inflation Expectation – Consensus Forecast
15
Source: Bank Indonesia
Monetary Policy Stance
In the latest Board Meeting convened on November 4 2010, Bank Indonesia decided to hold the BI Rate at 6.50%, consistent
with achievement of the inflation target and remains conducive in safeguarding financial stability and promoting bank
intermediation for supply-side response to accelerated demand.
In addition to that, the Board of Governors stresses the greater importance of managing economic liquidity In the midst of
the sustained high rate of capital inflows and considerable excess liquidity:
• The decision to raise the primary statutory reserve ratio on 1 November 2010 has been implemented smoothly without
triggering shocks in banking liquidity.
•
Looking forward, Bank Indonesia will bolster management of liquidity and effectiveness of monetary policy with a
monetary and macro-prudential policy-mix to manage foreign capital inflows, stabilize the rupiah exchange rate and
assure inflation control in line with the established 5% 1% target for 2011.
BI Rate
14%
12%
10.75%
9.50%
10%
6.50%
8%
6.50%
6%
4%
2%
0%
May-06
16
Nov-06
May-07
Nov-07
May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
Source: Bank Indonesia.
Sound Financial Sector
Stability in the banking system remains firm alongside steady improvement in credit growth.
Sufficient CAR (%)
Sound level of NPLs (%)
25.0
5.0
20.5
20.0
19.3
19.3
17.4
16.2
15.0
19.1
4.5
gross NPL
4.0
net NPL
19.2
17.8
17.4
16.5
16.2
16.4
3.5
3.0
2.5
10.0
2.0
1.5
5.0
1.0
0.5
-
-
• Financial system stability up to October 2010 is well maintained, confirmed by Financial Stability Index (FSI) which charted 1.78,
lower than previous month and also well below the threshold (2.00) set as an early warning indicator. This indicate the robustness of
financial system. By the end of 2010, we expect FSI to be ranged between 1.45 to 2.02 with a 1.74 baseline, owing to the positive
macroeconomic outlook.
• Banking industry remains in a stable condition and convinced to be run prudently, which is reflected in the well-maintained Capital
Adequacy Ratio (16.4%, as of end of September 2010) and safe level of gross Non-Performing Loans at 3.3%, as of end of
September 2010.
17
Source: Bank Indonesia.
Main Banking Indicators
Banking system stability held firm amid the onset of renewed credit expansion (data as of September 2010)
* Preliminary figures, operational risk is calculated in August 2010 figures
18
Source: Bank Indonesia
Balance of Payments Q3-2010
Balance of Payments Q3-2010
Balance of payments
in Q3-2010 posted a
significant surplus of
around US$7.0 billion
Balance of Payments
The current account in Q3-2010
posted a surplus of about US$1.3
billion, boosted mainly by upbeat
performance in non-oil/gas trade
balance, gas trade balance and
current transfers. The surplus
was nevertheless down from the
previous quarter (US$1.8 billion
surplus) as a result of heightened
deficits in services and income
accounts.
The capital and financial account in Q3/2010 recorded a surplus of US$6.5 billion, up from the preceding quarter (US$4.4
billion surplus). This increased surplus was explained by inflows of portfolio investment and direct investment. The surge in
portfolio investment was fuelled by excess liquidity in the global financial markets, uncertain economic prospects in the US and
Europe, and more attractive investment returns in Indonesia compared to other nations. In similar developments, foreign direct
investment expanded in response to improvement in the investment climate and stable macroeconomic conditions.
Accordingly, international reserves at end of Q3 period (September 2010) increased to US$86.6 billion, equivalent to 6.6 months
of imports and official external debt service payments. By end of October 2010, foreign exchange reserves mounted to US$91.8
billion.
20
Balance of Payments Q3–2010
21
Source: Bank Indonesia
BoP Q3-2010: Trade Balance
Non-oil and gas trade balance posted an increased surplus of US$7.2 billion in Q3-2010 (Q2-2010: US$6.8 billion surplus).
Strong world demand for resource-based commodities produced an increased surplus in the non-oil/gas trade balance.
The non-oil and gas exports recorded a positive growth (y.o.y) of 27.0% in Q3-2010, mainly due to growth of manufactured
goods. Meanwhile, the non-oil and gas imports also posted a positive growth of 33.7%, in which imports of raw material recorded
the highest growth.
The oil & gas trade balance was relatively stable as a smaller gas trade balance surplus was counterbalanced by a smaller oil
trade balance deficit.
Oil trade balance recorded a smaller deficit following a decline in both oil import volume and world oil price. In the same time,
despite of increased gas export volume, the gas trade balance posted a smaller surplus due to a decline in gas price in line with
the oil price downturn.
Trade Balance: Non-Oil & Gas
22
Trade Balance: Oil & Gas
BoP Q3-2010: Services, Income, and Current Transfers
• The services account deficit was higher than
the deficit in Q2-2010 primarily due to an
increased deficit in freight services, in line with
increased import activities.
Services, Income, and Current Transfers
• The income account deficit rose as a result of
increased interest and dividend payments to
foreign investors in correspondence with higher
volume of domestic securities held by foreigners.
• Meanwhile, current transfers surplus was slightly
increase as inflow of workers’ remittances still
higher than workers’ remittances outflow.
23
Source: Bank Indonesia
BoP Q3-2010: Financial Account
The net financial account posted a surplus of US$6.5 billion in Q3-2010, triggered by inflows of portfolio investment and
direct investment. The increasing surplus was due to a liquidity glut in the global financial market, supported by a more attractive
investment returns in Indonesia. In addition, improvements in the domestic investment climate and stable macroeconomic
conditions also contributed to the positive development.
The residents’ investment abroad (the financial account - assets) posted a net outflows of US$4.4 billion in Q3-2010, compared
to a net inflows of US$0.2 billion in Q2-2010. The stream of Indonesia-owned asset abroad was primarily explained by mounted
placement on resident deposits in overseas banks in response to higher capital inflows.
Financial Account - Total
24
Financial Account - Assets
BoP Q3-2010: Financial Account
FDI registered USD3.4 billion surplus, higher than the
previous quarter, in line with more conducive investment
climate and stable macroeconomic conditions.
FPI recorded a USD6.2 billion surplus, higher than USD1.2
billion surplus in the preceding period. Excess liquidity in the
global financial markets, uncertain economic prospects in the
US and Europe, and more attractive investment returns in
Indonesia were the main factors behind this strong inflows.
FOI recorded a USD1.3 billion surplus, in contrast with a
USD0.4 billion deficit in Q2-2010. This upturn was due to
increased foreign loan withdrawals by the banking sector to
finance its credit expansion and smaller foreign debt
repayments by the corporate sector.
Foreign Portfolio Investment
25
Foreign Direct Investment
Foreign Other Investment
Source: Bank Indonesia
Prudent Fiscal Management
State Budget 2010: Deficit & Financing
In trillion IDR
27
In billion IDR
Source: Ministry of Finance
Budget Deficit / GDP
Public Finances is a fundamental strength of the Indonesian economy; most of Indonesian ratios are strong or
stronger than its peers; Fiscal Budget deficit has traditionally been limited and remained contained in 2009. Fiscal Stimulus
did not impact much on fiscal deficit in 2009
Budget Deficit / GDP (%)
28
Budget Deficit / GDP 2009* vs. Emerging Markets Countries
Source: Ministry of Finance
Debt Figure, 2004 - 2010
Debt Composition
Debt to GDP Ratio (% of GDP)
60%
100%
57.5%
47.3%
50%
75%
39.0%
40%
35.2%
50%
50%
47%
47%
50%
50%
53%
53%
2004
2005
2006
2007
52%
47%
45%
53%
55%
2009
Aug-10
33.1%
28.3%
30%
27.0%
50%
20%
25%
10%
48%
0%
2004
2005
2006
2007
2008
2009
2010
Notes:
* = Preliminary
** = Very Preliminary
*** = Very Very Preliminary, GDP Number Based on Revised Budget 2010 Assumption
0%
Domestic Debt
2008
External Debt
Notes:
^ = Based on debt outstanding as of Aug 2010
Table of Debt to GDP Ratio
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
1,590,656.07
836,308.91
754,347.16
1,654,193.71
905,619.60
748,574.11
Debt to GDP Ratio
- Domestic Debt to GDP Ratio
- Foreign Debt to GDP Ratio
29
End of Year
2006
2007
2008*
2009**
Aug 10***
56.60%
47.34%
38.99%
35.18%
33.04%
28.34%
26.45%
28.44%
28.16%
23.74%
23.60%
20.76%
18.24%
18.66%
16.52%
15.82%
17.22%
14.90%
13.44%
14.48%
11.97%
Notes:
* = Preliminary
** = Very Preliminary
*** = Very Very Preliminary, GDP number based on Budget 2010 Assumption
[Outstanding as of Aug, 2010]
Source: Ministry of Finance
Proposed State Budget 2011: Financing Plan
30
Proposed State Budget 2011
31
Proposed State Budget 2011: Macroeconomic Indicator Projection
2010
Indicators
2011
Budget
Revised
Budget
Proposed
Economic Growth (%)
5,5
5,8
6,4
Inflation (%)
5,0
5,3
5,3
Exchange Rate (IDR/US$)
10.000
9.200
9.250
Interest Rate (3-Month) (%)
6,5
6,5
6,5
ICP (US$/barrel)
65
80
80
0,965
0,965
0,970
Oil Lifting (MBCD)
Macro Economic Policy Target 2011:
32
•
Unemployment: 7,0%
•
Poverty: 11,5% - 12,5%
•
Economic growth: 6,4%
•
Minimum investment requirement IDR 2.243,8 Trillion
•
1% economic growth will absorb 400 thousand work force
Source: Ministry of Finance