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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) Abdurohman (Fiscal Policy Office – Ministry of Finance, Phone: +6221 384 6379) Subhan Noor (Debt Management Office - Ministry of Finance, Phone: +6221 381 0175) E-mail: contactIRU-DL@bi.go.id 1
Table of Content Exec ecut utive e Summa mmary Improved ed Intern ernati ational nal Percep epti tion n and Risi sing ng Invest estme ment nt Pre reser served ed Macroec econo nomi mic Stability ty Pruden ent Fisc scal al Manag nageme ement nt Governmen ernment t Debt t Performa manc nce 2
Executive Summary 3
Executive ve Summa mary ry Economic growth accelerated in Indonesia during the fourth quarter of 2014 in comparison to the preceding quarter, despite annual growth for 2014 slowing down. The Indonesian economy achieved 5.01% (yoy) growth in the fourth quarter, up from 4.92% (yoy) in the previous period. Despite early signs of improvement during the fourth quarter of 2014, annual growth slowed in 2014 to 5.02%, which is lower than that posted in the preceding year, consistent with weaker global economic growth and macroeconomic stabilization policy. Stronger economic growth is projected in 2015, in the range of 5.4-5.8%, bolstered by expansive government investment as fiscal capacity expands to catalyze productive economic activity, including infrastructure development as approved in the 2015 budget. The Indonesia balance of payments (BOP) improved in the fourth quarter of 2014, primarily due to a smaller current account deficit. The current account deficit totaled US$6.2 billion (2.81% of GDP) in the fourth quarter, down from US$7 billion (2.99% of GDP) in the third. A growing non- oil/gas trade surplus, together with a decreasing oil and gas deficit, helped boost current account performance. Meanwhile, the financial and capital account recorded a large surplus, backed predominantly by foreign direct investment (FDI) congruent with the positive perception investors hold concerning the domestic economic outlook. In January 2015, the trade surplus totaled US$0.7 billion, exceeding that posted in the preceding quarter, bolstered by a smaller oil and gas deficit. Inflation remained under control, thus supporting the prospect of achieving the 2015 inflation target, namely 4±1%. The Consumer Price Index (CPI) experienced deflation of 0.24% (mtm) in January 2015 as a tangible outcome of lower fuel prices and less intense inflationary pressures on volatile foods. In addition, core inflation was controlled at a level of 0.61% (mtm) or 4.99% (yoy). Financial system stability was maintained with the support of steadfast banking system resilience and relatively sound financial market performance. Banking industry resilience remained solid with credit risk, liquidity risk and market risk well mitigated and the support of a healthy capital base. At the end of the reporting quarter, the Capital Adequacy Ratio soared to 19.40%, well above the statutory minimum of 8%, while non- performing loans (NPL) were low and stable at around 2.0%. On 17th February 2015, the Bank Indonesia Board of Governors decided to lower the BI Rate 25 bps to 7.50%, with the Deposit Facility rate also reduced 25 bps to 5.50% and the Lending Facility rate maintained at 8.00%, effective 18th February 2015. Such policy measures were instituted based on Bank Indonesia’s conviction that inflation will remain under control at the lower end of the 4±1% range in 2015 and 2016. Bank Indonesia will continue to strengthen its monetary and macroprudential policy mix, bolster the payment system and intensify coordination with the Government in terms of controlling inflation, reducing the current account deficit and promoting structural reforms in order to support higher economic growth. On the fiscal front, Indonesia will continue its prudent fiscal management in 2015 with strong commitment to fiscal consolidation . Recent reform policy represents an essential step and integral part of structural reforms to strengthen economic fundamentals in Indonesia. 2015 revised budget deficit is projected at a safe level of 1.91% of GDP . 4
Executive ve Summa mary ry GDP Growth Inflation Balance of Payments Foreign Exchange Reserves 5 * Preliminary Figures
Executive Summary Central Government Debt to GDP Ratio (% of GDP) Debt Composition 33.0% 35% 120% 28.3% 30% 26.2% 26.2% 100% 24.7% 24.4% 24.0% 25% 80% 44.5% 43.3% 44.1% 46.3% 45.1% 47.4% 46.8% 52.1% 20% 60% 15% 40% 10% 55.5% 56.7% 55.9% 53.7% 54.9% 52.6% 53.2% 47.9% 20% 5% 0% 0% 2008 2009 2010 2011 2012 2013 2014 Jan-15 2008 2009 2010 2011 2012 2013 2014* Domestic Debt Foreign Debt Table of Debt to GDP Ratio End of Year 2008 2009 2010 2011 2012 2013 2014 GDP 4,954,028.9 5,613,441.7 6,422,918.2 7,427,086.1 8,241,864.3 9,083,972.2 10,542,700.0 Debt Outstanding (billion IDR) 1,636,740.7 1,590,656.1 1,681,656.5 1,808,946.8 1,977,706.4 2,375,495.5 2,604,932.6 - Domestic Debt (Loan+Securities) 783,855.1 836,308.9 902,823.4 993,038.2 1,097,993.2 1,263,928.6 1,477,516.7 - Foreign Debt (Loan+Securities) 852,885.6 754,347.2 778,833.1 815,908.6 879,713.2 1,111,567.0 1,127,415.8 Debt to GDP Ratio 33.0% 28.3% 26.2% 24.4% 24.0% 26.2% 24.7% - Domestic Debt to GDP Ratio 15.8% 14.9% 14.1% 13.4% 13.3% 13.9% 14.0% - Foreign Debt to GDP Ratio 17.2% 13.4% 12.1% 11.0% 10.7% 12.2% 10.7% Source: Ministry of Finance 6
2015 Policy y Summa mary ry Government coordinates policy tools to stabilize growth with macroeconomic management Revenue and tax policy Monetary policy mix Bold and pre-emptive policy through regulation of BI Policy Rate, Improvement of tax revenue administration. responsively adjusting to current macroeconomic condition. Improvement of regulations related to tax revenues, especially Exchange rate flexibility to facilitate external adjustments. income tax, VAT, and VAT – Luxury Goods. Financial market deepening and capital flows management. Increase law enforcement conducted through intensification and improved examination of the taxpayer and certain business sectors. Macroprudential and supervisory actions. Extending additional new tax subject and VAT Activities related to Policy coordination with the government and financial stability ‘Build Your Own’ . forum. Optimization of customs and excise policy implementation as it has Central bank cooperations, including second line of defences. been presented in the State Budget 2015. Optimization of oil & gas lifting and cost recovery, as well as the improvement of the system and administration of non-tax state revenues. Expenditure policy Financing and debt management policy Increasing infrastructure spending to support growing economy. Capital injection to state-owned companies, as agents of development in supporting national priorities Reduction of poverty through conditional cash transfers. Optimizes Governments securities issuance from domestic sources Increase the effectiveness of targeted subsidies. to fulfill Budget need and uses foreign debts as complimentary. Support the accelerated achievement of minimum essential force in Determines debt instrument by taken into account of market need national defense in regard to market development and portfolio management. Support the management of natural resources in improving food, Issues Retail Bond for instrument diversification and financial water, and energy security. inclusion. Expanding access and quality of education. Optimizes foreign and domestic loan instrument to fulfill Budget Improve the implementation quality of the National Social Security need on capital expenditure. System in terms of health and employment. Conducts active portfolio management of Government securities in Minimizing the impact of uncertainty through the support of fiscal order to promote market liquidity and stability. risk reserves. Strengthens the function of Investor Relations Unit. 7
Improved International Perception and Rising Investment 8
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