Indonesian Economic Outlook

Indonesian

Economic Outlook

2015FADHIL HASAN

INSTITUTE FOR DEVELOPMENT OF ECONOMICS AND FINANCE (INDEF)

New government, new initiative: Nawa Cita

Theme is "Strong Development, Inclusive and Sustainable"

ECONOMICS DEVELOPMENT

AGENDA

NATURAL RESOURCES/ ENVIRONTMENTAL

Strengthening food security, energy and water

Accelerating the marine development

Improvement of environmental quality

Addressing climate change (Mitigation and adaptation)

ECONOMY

Development and technological innovation system

Increased investment and financial sectors

Increase workforce competitiveness and State-Owned Enterprises

Increase the contribution of small and medium enterprises in the economy

Preparation of natural resources for industrial sector

Development of processing industry

Efficiency of national logistics and distributionIncrease in non-oil exports and high value-added services

FACILITIES AND INFRASTRUCTURE

Improving connectivity and synergy between sectors

Meeting the needs of basic infrastructure

Creating mass transportation

Source:RPJMN 2015-2019

Four main priorities of economic

agendas

Baseline 2014 Target 2019

Construction of reservoirs (unit) 21 49

Construction of new roads (km) 1202 2650

Construction of highways (km) 807 1000

Railway track (km) 5434 8692

Number of airports (unit) 237 252

Development of infrastructures


Rice (million tonnes) 70.6 82

Corn (million tonnes) 19.13 24.1

Soybean (million tonnes) 0.92 2.6

Sugar (million tonnes) 2.6 3.8

Beef (thousand tonnes) 452.7 755.1

Fish production (million tonnes) 12.4 18.8

Achieving food self-sufficiency


Generating capacity (GW) 50.7 86.6

Electrification ratio (%) 81.5 96.6

Crude oil (thousand barrels oil/day equal to oil) 818 700

Natural gas (thousand barrels oil/day equal to oil) 1224 1295

DMO (Domestic Market Obligation) of natural gas (%) 53 64

Gas pipelines (km) 11960 18322

Construction of refinery (unit) 1

Achieving energy security


Construction of ports to support the marine highway (unit) 24

The development of ferry ports (unit) 210 270

The development of of fishing ports (unit) 21 24

Pioneer ships (unit) 50 104

Fishery production (million tonnes) 22.4 40-50

Increasing the area of marine conservation (million Ha) 15.7 20

Development maritime sectors


"Nine Priority Agenda (Nawa Cita) Jokowi-JK Improvement Action Program to economic self-

reliance

Build food sovereignty based on agribusiness

Control policy on food imports through the eradication of the

"import mafia"

Agriculture poverty alleviation and support the re-generation of farmers through:

100 villages sovereign seed

To enhance the capacity of farmers, the active involvement of women

Build irrigation, dams, roads, transportation and markets

Increased development and rural economic attractivities

Agrarian Reform

Land reform by delivery 9 million hectares of land

Ownership of agricultural land into 2 acres per family farmer and the opening of the 1 million dry land outside Java and Bali

Creating a special bank for agriculture, Small

and Medium Enterprises and Cooperatives

SBY & Jokowi

2010 2011 2012 2013 2014* 2015* 2016* 2017* 2018* 2019*

GDP growth (%) 6.2 6.5 6.3 5.8 5.02 5.7 6.6 7.1 7.5 8

Income per capita (thousand Rp) 27,029 30,659 33,531 36,508 43,403 47,804 52,686 58,489 64,721 72,217

Inflation (%) 5.1 5.4 4.3 8.4 8.4 5 4 4 3.5 3.5

Rupiah exchange rate (Rp/USD) 8,991 9,068 9,670 12,189 11,878 12,500 12,150 12,100 12,050 12,000

Primary balance of budget/GDP (%) 0.6 0.1 -0.6 -1.1 -0.7 -0.6 -0.5 -0.4 -0.3 0

Surplus/Deficit budget/GDP (%) -0.7 -1.1 -1.9 -2.3 -2 -1.9 -1.8 -1.6 -1.4 -1

Tax/GDP (%) 11.3 11.8 11.9 11.9 11.5 13.2 14.2 14.6 15.2 16

Stock of government debt/GDP (%) 26.2 24.4 24 26.1 23.9 26.7 23.3 22.3 21.1 19.3

Foreign debt (%) 9.6 8.4 7.5 7.8 6.2 5.3 4.8 4.2 3.8 3.3

Domestic debt (%) 16.6 16 16.5 18.3 17.7 18.7 18.6 18.2 17.7 16.7

Unemployment rate (%) 7.4 6.8 6.2 5.8 5.9 5.5-5.8 5.2-5.5 5.0-5.3 4.6-5.1 4.0-5.0

Poverty rate (%) 13.33 12.49 11.46 11.37 10.96 9.5-10.5 9.0-10.0 8.5-9.5 7.5-8.5 7.0-8.0

IndicatorsSBY JOKOWI


Need goverment intervention

Need huge budgetfiscal expansion

The investment needs (trillion rupiah)

493 673 763 937 1,158

3,452 3,827

4,425 5,041

5,789 3,945

4,500 5,188

5,978

6,947

2015 2016 2017 2018 2019

Public

Government

4,023.8

15%

22,534.1

85%

Government

Public

Total 2015-2019

Rp26,557.9 T


Additional State Capital Investment

(Rp73 trillion)

Food self-sufficiency

Infrastructure & maritime

Aerospace industry

Defense industry

Major change in government budget

Source: Kata Data, 19 Nov 2014

Increase budget

allocation for

infrastructure, agriculture, energy

and maritime sectors

Government budget: assumption

Indicators 2014 Realization 2015 Revised Budget

GDP Growth (%) 5.02 5.7

Inflation (%, yoy) 8.36 5.0

Rupiah Exchange Rate (Rp/USD) 11,878 12,500

3-Month Government T-Bills (%) 5.8 6.2

Indonesian Crude Oil Price (USD/barrel) 97 60

Oil Lifting (thousand barrels/day) 794 825

Gas Lifting (thousand barrels oil/day equal to oil) 1,224 1,221Source: Ministry of Finance RI, 2015

Revenue

Domestic Revenue, 2006 2015 (Trillion Rp)

Source: Kementerian Keuangan, Nota Keuangan & RAPBNP 2015

Expenditure

Expenditure, 2006 2015 (Trillion Rp & % )

Financing

Summary of the state budget

Opportunities and risk

External factors:

Declining of agriculture and oil prices

Slowing down world economic growth (china, japan, EU)

Increase of the fed rate

Internal factors:

Current account deficit

Institutional capacityexecution

Policy consistency

Coordination central and regional government

Political stabilityeffectiveness of program.....

Trend in oil price

Trend in agricultural prices

Economic Growth

GDP (%,yoy) 2013 2014Projection

2015 2016

World 3,3 3,3 3,5 3,7

AS 1,3 1,8 2,4 2,4

Eurozone -0,5 0,8 1,2 1,4

Japan 1,6 0,1 0,6 0,8

China 7,8 7,4 6,8 6,3

India 5 5,8 6,3 6,5

Sumber: IMF-World Economic Outlook Update, Januari 2015

Corporate debt is very sensitive to exchange rate fluctuation

Sumber: REO, 2014 (olah)

18

Sources of corporate debt dominated by other sources (38.7%

of GDP), l debt from direct

investment (8,7% of GDP) and from

affiliates (4,7%).

Exchange rate depreciation will increase interest rate and primary

debt denominated foreign currency

that potential default is high and

corporate profit decline. Rupiah

continues to depreciate in the last

year.

Corporate foreign debt to GDP

Result from stress test IMF if there is shock

Source: IMF, 2014

19

Indonesian companies is very vulnerable to the shock. IMF

showed that if borrowing cost increase by 250 bps or profit

decline by 25%, Indonesia

companies has high debt risk.

Level of Indonesian corporate debt is below 30% and will increase to 48% if there is a

shock.

Percentage of corporate debt if there is external shock

Normalization scenario and declining in commodity

prices

20

US economy recovery is a trade off for emerging

economies slowing down.

Normalization cycle Normalisasi

Siklus InteraksiEkonomi yang

Saling

terintegrasi

Current account deficit Keterangan

2014

TotalQ1* Q2* Q3**

I. Transaksi Berjalan -4,156.83 -8,688.52 -6,835.77 -19,681.12

A. Barang 3,349.64 -126.35 1,555.21 4,778.50

B. Jasa - jasa -2,230.31 -2,908.86 -2,531.09 -7,670.26

C. Pendapatan Primer -6,360.98 -7,193.27 -7,053.26 -20,607.51

D. Pendapatan Sekunder 1,084.82 1,539.96 1,193.37 3,818.15

II. Transaksi Modal 1.23 7.21 3.25 11.69

III. Transaksi Finansial 6,967.23 14,322.24 13,667.88 34,957.35

- Aset -5,895.22 -2,682.12 -3,468.04 -12,045.38

- Kewajiban 12,862.46 17,004.36 17,135.92 47,002.74

1. Investasi Langsung 2,802.68 3,695.40 5,428.58 11,926.66

2. Investasi Portofolio 8,702.84 8,316.91 7,089.52 24,109.27

3. Derivatif Finansial -140.36 45.25 -57.36 -152.47

Memorandum:

- Posisi Cadangan Devisa 102,591.87 107,678.11 111,164.46

Dalam Bulan Impor dan

Pembayaran Utang Luar Negeri

Pemerintah

5.73 6.06 6.32

- Transaksi Berjalan (% PDB) -2.05 -4.06 -3.07

Current account deficit is still large (3.07% of GDP) in third quarter 2014.

Service account deficit is USD 7.67 miliar.

Income account defisit is USD 16.78 miliar.

Conclusion

The government should improved the quality of budget

absorption.

The government should accelerate the realization of

infrastructure projects.

Create a conducive investment climate.

Political stability.

Bureaucratic reform.

Encourage diversification of export products.

Maintaining purchasing power.

Maintaining macroeconomic stability.

Indonesian Economic Outlook

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