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About Invest stor or Relation ons s Unit (IRU) U) ABOUT THE REPUBLIC OF INDONESIA INVESTOR RELATIONS UNIT The Republic of Indonesia Investor Relations Unit (IRU) has been established as the joint effort between the Coordinating Ministry of Economic Affairs, Ministry of Finance and Bank Indonesia since 2005. The main objective of IRU is to actively communicate Indonesian economic policy and address concerns of investors, especially financial market investors. IRU is expected to serve as a single point of contact for the financial market participants. As an important part of its communication measures, IRU maintains a website under Bank Indonesia website which is being administrated by the International Department of Bank Indonesia. However, investor relations activities involve a coordinated efforts which are supported by all relevant government agencies, i.e. Bank Indonesia, the Ministry of Finance, the Coordinating Ministry for Economic Affairs, Investment Coordinating Board, Ministry of Trade, Ministry of Industry, State Ministry of State Owned Enterprises, State Asset Management Company, and the Central Bureau of Statistics. IRU also holds an investor conference call on a quarterly basis, answers questions through email, telephone and may arrange direct visit of banks/financial institutions to Bank Indonesia and other relevant government offices. Published by Investor Relations Unit – Republic of Indonesia Contact: Wiwit Widyastuti K. (International Department - Bank Indonesia, Phone: +6221 2981 8279) Dalyono (Fiscal Policy Office – Ministry of Finance) Subhan Noor (Debt Management Office - Ministry of Finance, Phone: +6221 381 0175) E-mail: contactIRU-DL@bi.go.id 1
Table of Content Executive Summary Improved International Perception and Rising Investment Preserved Macroeconomic Stability Prudent Fiscal Management Government Debt Performance Wide Range of Policy Reforms to Boost Economic Growth 2
Executive Summary 3
Executive ve Summa mary ry Economic growth accelerated in the third quarter of 2015, with the trend projected to continue into the fourth quarter. Third quarter growth was recorded at 4.73% (yoy), surpassing that posted last period at 4.67% (yoy). This was mainly due to stronger government consumption and investment, in line with significant progress in terms of government infrastructure projects. Sound non-oil and gas trade balance preserved the current account gains during the reporting period. The current account deficit in the Indonesia Balance of Payments (BOP) stood at USD4.0 billion (1.86% of GDP) in Q3/2015, improving from USD7.0 billion (3.02% of GDP) in Q3/2014 and USD4.2 billion (1.95% of GDP) in Q2/2015. Rupiah rebounded after intense depreciatory pressures were felt in the third quarter. In Q3/2015, Rupiah depreciated on average by 5.35% (qtq) to a level of Rp13,873 per USD due to external factors, namely concerns over the normalisation policy of the Federal Reserve as well as Yuan devaluation in China. Nonetheless, the Rupiah strengthened in October 2015 on positive sentiment for EM due to a dovish announcement relayed at the FOMC, coupled with optimism regarding the economic outlook of Indonesia after the Government released a series of policy packages and Bank Indonesia intervened on the foreign exchange market to stabilise the Rupiah. The Consumer Price Index (CPI) remains under control, experienced deflation in October 2015. Deflation was recorded at 0.08% (mtm) or 6.25% (yoy) in line with volatile food deflation after foodstuff prices were corrected due to increased supply. Consequently, inflation from January to October 2015 stood at 2.16% (ytd) or 6.25% (yoy). Financial system stability remained solid, underpinned by a resilient banking system and relatively stable financial markets. Banking industry resilience endured, with credit, liquidity and market risks well mitigated. In September 2015, the Capital Adequacy Ratio (CAR) remained significantly above the 8% minimum threshold at 20.4%, while non-performing loans (NPL) were low and stable at 2.7% (gross) or 1.3% (net). The BI Board of Governors agreed on 17th November 2015 to hold the BI Rate at 7.50%, while maintaining the Deposit Facility rate at 5.50% and the Lending facility rate at 8.00%. The Board of Governors also decided to lower the primary reserve requirement in Rupiah from 8.0% to 7.50%, effective on 1st December 2015. Bank Indonesia considered that the macroeconomic stability has continued to improve, making room to maintain a loose monetary policy stance. Bank Indonesia believes that the 2015 inflation will be maintained at the lower end of the 4±1% inflation target, with the current account deficit is projected at 2% of GDP . With the lingering uncertainty in the global financial market, stemming mainly from the expected Federal Funds Rate (FFR) hike as well as the diversity of monetary policies from ECB, BoJ, and PBoC, Bank Indonesia will remain vigilant in loosening its monetary policy. On the fiscal front, Indonesia will continue its prudent fiscal management in 2015 with strong commitment to fiscal consolidation . Recent policy reforms represent an essential step and integral part of structural reforms to strengthen economic fundamentals in Indonesia. The budget deficit for 2015 is projected at a safe level of 2.2% of GDP . 4
Executive ve Summa mary ry GDP Growth Inflation 7.0 6.5 6.3 6.1 6.0 6.0 5.7 5.6 6.0 5.5 5.0 4.7 4.7 4.7 4.6 5.0 4.0 3.0 2.0 1.0 - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014* Q1 Q2 Q3 2015 2015 2015 Source: Bank Indonesia Source: BPS, Bank Indonesia Balance of Payments Fiscal Balance 20 140 - 15 120 -0.7% (0.5) 10 100 1.1% (1.0) 5 80 (1.5) 1.8% 0 60 2.2% 2.2% -5 40 (2.0) -10 20 (2.5) -15 0 Q2** Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1* Q2* Q3* Q4* Q1* (3.0) 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 2015 Fiscal Surplus / (Deficit) (% of GDP) Current Account Capital & Financial Account Overall Balance Reserve Assets 5 * Preliminary Figures Source: BPS Source: Bank Indonesia
Executive ve Summa mary ry Central Government Debt to GDP Ratio (% of GDP) Debt Composition Table of Debt to GDP Ratio Note: Source: Ministry of Finance Using GDP at Current Market Prices [2010 Version] *) Preliminary Figures 6
2015 Policy y Summa mary ry Government’s coordinated policy tools to promote growth through macroeconomic management Quality of Spending Monetary Policy Mix Bold and pre-emptive policy through BI Policy Rate, responsively Fuel subsidy savings of IDR 211.3 trillion. adjusting to current macroeconomic condition. Reallocation of savings towards basic infrastructure (food security, Exchange rate flexibility to facilitate external adjustments. connectivity and maritime) and social welfare. Financial market deepening and capital flows management. Infrastructure expenditure is higher than energy subsidy. Food security spending larger than energy subsidy. Accommodative measures of macroprudential policy. Policy coordination with the government and financial stability Additional allocation for village funds. forum. Cashless smart cards system for better targeted subsidy. Central bank cooperations, including second line of defences. Capital injection to SOEs. State Revenues Optimization Financing and Debt Management Policy Strategies: Capital injection to state-owned companies, as agents of development in supporting national priorities. Improving compliance rate. Optimizes Governments securities issuance from domestic sources Closing tax leakage (especially VAT Refund). to fulfill Budget need and uses foreign debts as complimentary. Expanding tax base (Mapping Tax Payer). Determines debt instrument by taken into account of market need in regard to market development and portfolio management. Issues Retail Bond for instrument diversification and financial inclusion. Manageable Fiscal Deficit Optimizes foreign and domestic loan instrument to fulfill Budget Fiscal deficit to be lowered from 2.2% of GDP to 1.9% of GDP. need on capital expenditure. Spacious fiscal room for maneuver to anticipate global uncertainty. Conducts active portfolio management of Government securities in order to promote market liquidity and stability. Strengthens the function of Investor Relations Unit. 7
Improved International Perception and Rising Investment 8
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