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About t Invest stor or Relatio tions s Unit t (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 tent Exec ecut utive e Summa mmary Improved ed Intern ernatio ational nal Percep epti tion n and Risi sing ng Investme estment nt Pre reser served ed Macroec econo nomi mic Stability ty Pruden ent Fiscal scal Manag nagement ement Govern ernmen ment t Debt t Performanc mance 2
Executive Summary 3
Executive Summary mary Economic adjustment continued with moderating growth. Economic growth in Q3-2014 recorded at 5.01% (yoy), lower than 5.12% (yoy) posted in the preceding quarter. For 2014, the domestic economy is expected to expand in line with the projection of 5.1-5.5%, with a tendency towards the lower range since global economic growth is not as strong as previously estimated. However, in 2015, economic growth is projected to accelerate to 5.4-5.8%. In a departure from conditions in 2014, on top of strong household consumption, expanding government consumption and investment in line with greater fiscal capacity to support productive economic activities, including infrastructure development, will catalyse high economic growth Indonesia's trade balance showed improvement during 2014, supported primarily by an increase in non-oil & gas trade balance surplus. Imports declined in line with slowdown domestic demand, the rupiah exchange rate undulated in accord with its fundamental value and the oil price dropped. Exports weakened in line with slower global economic recovery, especially China and slump in main commodity export prices. Even though it declined, exports of some manufacturing products tend to improve in line with US recovery. Cumulatively, up to November 2014, the trade balance in 2014 is in much better shape than that of in 2013. The fuel subsidy adjustment in November 2014 has put upward pressure on inflation level , with Bank Indonesia perceived the inflation rate to peak in December 2014. Consequently, CPI inflation rose to 2.46% (mtm) & 8.36% (yoy) in December 2014, rising from 1.50% (mtm) & 6.23% (yoy) in the preceding month. Inflation of administered prices escalated to 17.57% (yoy), while volatile food inflation increased to 10.88% (yoy). In contrast, core inflation was relatively well managed at 4.93% (yoy). Nonetheless, stable core inflation and a declining international oil price have reassured that inflation will remain under control within its target corridor of 4±1% in 2015. The ongoing economic rebalancing process are not compromising financial system stability . Banking system remained resilient with sufficient capital and well-mitigated risks. Meanwhile, the capital market performed well in December 2014, substantiated by gains in the IDX composite index. The Bank Indonesia Board of Governors, convened on 15th January 2015, decided to hold the BI rate at 7.75%, with the Lending Facility and Deposit Facility rates to remain at 8.00% and 5.75% respectively. The policy is consistent with efforts to control inflation towards its target corridor of 4±1% in 2015 and 2016, as well as manage the current account deficit to a more sustainable level. 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 continues to perform prudent fiscal management in 2014 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. 2014 budget deficit is at a safe level of 2.46% of GDP , decreasing to 1.91% of GDP in 2015. 4
Executive Summary mary GDP Growth Inflation Balance of Payments Foreign Exchange Reserves 5 * Preliminary Figures
Executive Summary Central Government Debt to GDP Ratio (% of GDP) Debt Composition 40% 35.1% 120% 33.0% 35% 28.3% 100% 30% 26.2% 26.2% 25.7% 24.4% 24.0% 80% 25% 44.5% 43.3% 46.3% 45.1% 46.9% 47.4% 46.8% 52.1% 20% 60% 15% 40% 10% 56.7% 54.9% 55.5% 53.1% 52.6% 53.7% 53.2% 47.9% 20% 5% 0% 0% 2007 2008 2009 2010 2011 2012 2013 2014*) 2007 2008 2009 2010 2011 2012 2013 2014* Domestic Debt Foreign Debt Table of Debt to GDP Ratio End of Year 2007 2008 2009 2010 2011 2012 2013 2014*) GDP 3,957,400.0 4,954,028.9 5,613,441.7 6,422,918.2 7,427,086.1 8,241,864.3 9,083,972.2 10,137,213.0 Debt Outstanding (billion IDR) 1,389,415.0 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) 737,125.5 783,855.1 836,308.9 902,823.4 993,038.2 1,097,993.2 1,263,928.6 1,477,516.7 - Foreign Debt (Loan+Securities) 652,289.5 852,885.6 754,347.2 778,833.1 815,908.6 879,713.2 1,111,567.0 1,127,415.8 Debt to GDP Ratio 35.1% 33.0% 28.3% 26.2% 24.4% 24.0% 26.2% 25.7% - Domestic Debt to GDP Ratio 18.6% 15.8% 14.9% 14.1% 13.4% 13.3% 13.9% 14.6% - Foreign Debt to GDP Ratio 16.5% 17.2% 13.4% 12.1% 11.0% 10.7% 12.2% 11.1% Notes: • * Preliminary Figures Source: Ministry of Finance 6
2014 Policy y Summa mary ry Government coordinates policy tools to stabilize growth with macroeconomic management Revenue and tax policy Monetary policy mix Preemptive and bold increase of BI Policy Rate to 7.75%, an Enlarging taxbase by focusing on mining, plantation, property and increase by 200 bps since June 2013. trade sector. Exchange rate flexibility to facilitate external adjustments. Improving tax administration system to increase tax compliance. Financial market deepening and capital flows management. Improving tax regulation in order to give certainty, fairness and reasonable treatment. Macroprudential and supervisory actions, eg LTV to property and Extensification of high-income and middle individual taxpayers. automotive sectors, external debt regulation for non-bank corporation. Optimization of data from the national tax census. Policy coordination with the government and financial stability Strengthening law enforcement for tax evasion. forum. Central bank cooperations, including second line of defences. Expenditure policy Financing and debt management policy Stimulating the economy through an increase in capital expenditure Daily monitoring of market and yield movements. for infrastructure to improve competitiveness & production capacity. Improving coordination amongst policy makers to stabilize the Improve government spending quality through efficiency measures broader financial system. as well as the strengthening of expenditure allocation of productive Prioritize funding from domestic market and financial institutions. expenditure. Focus on financial inclusiveness of government securities access Support the implementation of effective and efficient government, to wider retail investors. the 2014 election and the National Social Security System. Active government bonds portfolio management. Support the implementation of development programs to achieve Deepening cross currency swap arrangements with regional the goals of economic growth, poverty reduction and the reduction Central Banks to implement foreign exchange market intervention. of unemployment and increase the capacity of mitigation and adaptation to climate change and disaster. Financial management strengthening within the framework of fiscal decentralization to strengthen the financial capacity and reduce fiscal disparities among regions/ local governments. 7
Improved International Perception and Rising Investment 8
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