INDONESIA ECONOMIC OUTLOOK : OPPORTUNITIES AND CHALLENGES RADEN - PowerPoint PPT Presentation

INDONESIA ECONOMIC OUTLOOK : OPPORTUNITIES AND CHALLENGES RADEN PARDEDE, SENIOR ADVISOR COORDINATING MINISTRY OF ECONOMIC AFFAIRS A Nation in Progress

CHALLENGES Normalization Climate Change Interest rate and For Indonesia liquidity Stronger USD CAD Rapid technology development and job destruction Oil and Commodities Price Trade War Geo-politics Inequality Radicalism Anti-globalization Populism nationalism

FINANCIAL MARKET UNDER PRESSURE Source: CEIC Currency Movement (%, YTD) Stock Index Movement (%, YTD) 10-year Gov't Yield Movement (BPS) Data as of Data as of Data as of Dec 5, 2018 Dec 5, 2018 Dec 5, 2018 6,2 US NASDAQ 51 China USA -5,4 0,6 US DJI 19 Norway Norway -3,6 -19,9 China 7 UK UK -5,9 6,9 Norway -13 Australia Australia -10,0 -7,0 UK -13 EU -6,5 Australia 151 Indonesia EU -5,6 -10,2 European Union 3 Japan Indonesia -6,2 -3,5 Indonesia 16 Malaysia Japan -0,1 -41 -3,7 Japan Korea -3,6 Korea -15,3 South Korea 26 Singapore -13,1 100 South Africa South Africa -12,1 South Africa 15,9 112 Russian Federation Russian Federation Russian Federation -15,4 0 -3,2 Switzerland Switzerland Switzerland -2,4 40 6,1 India India India -10,8 -30 -20 -10 0 10 20 -100 -50 0 50 100 150 200 Stock Index Movement Government 10 Year Bond Yield Exchange Rate Against USD Data as of Data as of Data as of Dec 5, 2018 (Jan 2018 = 100) Dec 5, 2018 (%) Dec 5, 2018 (Jan 2018 = 100) 120 10 Indonesia EU Australia China Australia USA UK Norway 110 115 Euro Indonesia 8,1 8 UK Norway 110 105 105 6 100 100 4 95 95 2,9 90 2,5 2 1,8 90 DJI NASDAQ 100 Nikkei 85 1,3 FTSE ASX OSEAX 0,5 85 80 0 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - n b r r i n l g p t v s n b r r y n l g t v c n b r r i n l g p t v s p a u u a u e a p u e k o e a p a u c o e e a p u e k o e a m u j a e u e a m u j m o d M J O m o d j f a j a s n J F A M A S D j f a j a s n J N

GLOBAL ECONOMIC OUTLOOK REVISED DOWN IN OCT. 2018 Global Economic Growth (%) Advanced Countries Economic Emerging and Developing Growth (%) Countries Economic Growth (%) Revised Unrevised 6 Forecast Forecast Forecast Revised Unrevised Revised Unrevised 3 8 5 2,5 7 2,3 2,2 2,4 3,9 3,9 4 3,8 3,8 3,7 3,7 3,7 2 6 2,1 1,7 3,7 3,7 3,7 3,6 3,6 3,6 4,9 5,1 5,1 5,1 5,0 5,0 1,7 3 5 4,7 4,9 4,9 4,8 4,8 4,7 4,7 2 1 4 0 1 2 3 4 5 6 7 8 9 0 1 2 3 0 1 2 3 4 5 6 7 8 9 0 1 2 3 0 1 2 3 4 5 6 7 8 9 0 1 2 3 1 1 1 1 1 1 1 1 1 1 2 2 2 2 1 1 1 1 1 1 1 1 1 1 2 2 2 2 1 1 1 1 1 1 1 1 1 1 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 Source: World Economic Outlook, Oct & April 2018

SUMMARY ¡ Indonesia has made significant political, economic and social progress, and strengthened resilience during the past 2 decades (achievement) ¡ The economic landscape is shifting, highlighting some short and medium term challenges (challenges) ¡ To continue to prosper and further enhance resilience of the economy, Indonesia needs to further modernize its policy framework and implement critical reforms (response) ¡ Going Forward Indonesia will continue to grow above 5%, benefits from demographic bonus, policy reforms and technology adoptions (outlook)

ACHIEVEMENTS START FROM LOW BASE : INDONESIAN ECONOMY AMONG THE BEST PERFORMER Mckinsey

ACHIEVEMENTS CATCHING UP 2018 ~4,000

ACHIEVEMENTS POLITICAL AND ECONOMIC REFORMS • Democratic multiparty system (from military led political system) Political reforms • Broadly decentralization program (from centralized government) • Reduction of poverty and infant mortality Social progress • Improvement in living standards : life expectancy, education attainment, access to electricity, sanitation and clean water Economic policy • Fiscal : fiscal rules ( BD <3%), cap public debt • Monetary : floating exchange rate, inflation targeting reform • Banking sector : restructuration, overhauled supervision

ACHIEVEMENTS STABLE “HIGH MODERATE GROWTH” AND BECOME MORE RESILIENT ¡ Growth stabilized at about 5% ¡ Inflation contained within the target (3.5 +1 %) ¡ Public debt is moderate about 30% of GDP ¡ NPL are low. Less than 3% of total loans, CAR 22% ¡ Education spending 20% of total government spending ¡ Infrastructure spending has increased 3 folds since 2015

RESPONSES PURSUE CRITICAL REFORMS ¡ Medium term revenue strategy, to finance infrastructure, Education and health ¡ Carry Structural reforms ¡ Continue infrastructure development and ¡ W ell targeted education, social and health program ¡ Reduce reliance on portfolio investment and Boost FDI ¡ Streamline regulations : Lower restriction for trade and private investment, ease entry barriers on business (the fewer the better) ¡ Modernize SOE and strengthened the role of private sector ¡ Improve Institutional (politics) accountability

RESPONSES PRIORITIES OVER THE NEXT 5 YEARS ¡ Infrastructure across regions Connectivity : Roads, Airport, Seaport, Digital infrastructure ¡ Power Plant (renewable energy) and distribution ¡ ¡ Soft Infra and Human resource Education (basic) ¡ Vocational (multi-skill) ¡ Health ¡ ¡ Benefit from Technology (Digital and IOT) E-commerce, Platform economy, Travel and tourism ¡ New Unicorns (valuation 1B USD) ¡

RESPONSES RECENT POLICY INITIATIVES ¡ Fiscal Policy (responsible and prudent) : BD 2% Tax reform underway ¡ Discipline and well targeted spending ¡ ¡ Monetary Policy Ahead the curve ¡ Stability over growth ¡ ¡ Deregulation packages (16), incl recent Tax Holiday, Investment negative list, OSS ¡ CAD FDI more attractive ¡ Export push (new commodities and markets) ¡ Open (reduce investment negative list), FTA, Regional and Multilateral (CEPA) ¡

OUTLOOK GOING FORWARD, CONDUCIVE ENVIRONMENT IS UNDERPINNING GROWTH FUNDAMENTALS… ¡ The largest economy and population in South East Asia ¡ Demographic dividend ¡ Large consumer base for fast growing consumer spending power with middle income class continue to grow ¡ Strong Commitment to improve investment and business climate ¡ Infrastructure investment to improve efficiency and connectedness ¡ Human resource development, (the new priority in the next five years) ¡ Economy will continue to grow above 5% per-annum

OUTLOOK POTENTIAL .. BUT NOT EASY 16 Indonesia

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