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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 The economy of Indonesia slowed in 2015 in line with weaker global growth. Domestic economic growth was projected at 4.8% annually, down from the 5.0% (yoy) achieved in 2014. The slowdown was prompted by sluggish exports on the back of weaker global demand and lower commodity prices. In 2016, economic growth in Indonesia is projected in the range of 5.2-5.6% (yoy), bolstered by fiscal stimuli, primarily in the form of infrastructure projects, and tenacious consumption. The 2015 current account was expected improve from the previous year at around 2% of GDP . Improvements in the non-oil and gas as well as oil and gas trade balances contributed to the smaller current account deficit as imports decreased significantly. This was in line with the considerably weak domestic demand and exports due to lower commodity prices and dwindling global demand. Depreciatory pressures on the exchange rate have escalated in 2015, triggered by uncertainties in the FFR hike and Yuan depreciation. Through to November 2015, the rupiah depreciated by an average of 11.05% to a level of Rp13,351 per USD. Rupiah depreciation was precipitated by a number of externalities, including uncertainty surrounding the timing and magnitude of the FFR hike, concerns over fiscal negotiations in Greece and Yuan depreciation against a backdrop of economic moderation in China. Inflation in 2015 was projected below 3%. Low inflation was supported by volatile foods, deflation of administered prices and controlled core inflation. In November 2015, Consumer Price Index (CPI) data recorded inflation of 0.21% (mtm), affecting all components. Consequently, CPI inflation from January-November 2015 was recorded at 2.37% (ytd) or 4.89% (yoy) on an annualised basis. Inflation in 2016 was predicted to remain within the target corridor of 4±1%. 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 October 2015, the Capital Adequacy Ratio (CAR) remained well above the 8% minimum threshold at 20.8%, while non-performing loans (NPL) were low and stable at 2.7% (gross) or 1.4% (net). The BI Board of Governors agreed on 17th December 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%. Bank Indonesia believes that rooms for monetary easing are open, on the back of preserved macroeconomic stability, specifically end-2015 inflation that is projected to be below 3%, and current account deficit, projected at around 2% of GDP . However, with the lingering uncertainty in the global financial market, Bank Indonesia will remain vigilant in easing 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 will be maintained below the threshold of 3.0% 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 Fiscal Balance Balance of Payments billion USD billion USD (%) 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 30% 120% 24.9% 24.7% 24.5% 23.1% 23.0% 100% 25% 80% 44.5% 43.3% 44.0% 46.3% 45.1% 46.8% 20% 60% 15% 40% 10% 56.7% 54.9% 55.5% 56.0% 53.7% 53.2% 20% 5% 0% 2010 2011 2012 2013 2014 Nov-15 0% Domestic Debt Foreign Debt 2010 2011 2012 2013 2014* Table of Debt to GDP Ratio Source: Ministry of Finance Note: Using GDP at Current Market Prices [2010 Version] 6 *) Preliminary Figures
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 maintained below 3% 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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