Recent Economic Developments Published by Investors - PowerPoint PPT Presentation

REPUBLIC OF INDONESIA Recent Economic Developments ��������������

Published by Investors Relations Unit – Republic of Indonesia Address Bank Indonesia International Directorate Investor Relations Unit Sjafruddin Prawiranegara Building, 5 th floor Jalan M.H. Thamrin 2 Jakarta, 10110 Indonesia Tel +6221 381 8316 +6221 381 8319 +6221 381 8298 Facsimile +6221 350 1950 E-mail Elsya Chani: elsya_chani@bi.go.id Bimo Epyanto: bimo@bi.go.id Firman Darwis: firman_darwis@bi.go.id Website www.bi.go.id

Table of Content Executive Summary 4 Preserved Macroeconomic Stability to Support Further Growth 10 Balance of Payments: Q4 2010 19 Prudent Fiscal Management 27 Improved Government Debt Position 33

Executive Summary

Macroeconomic Overview GDP Growth Inflation 0.07 % 6.3% 20.00 6.1% 6.0% CPI (%, yoy) Core (%, yoy) Volatile Food (%, yoy) Administered (%, yoy) 5.7% 0.06 5.5% 15.00 0.05 4.6% 10.00 0.04 0.03 5.00 0.02 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Juli Aug Sep Oct Nov Dec Jan 0.01 -5.00 0 2009 2009 2010 2010 2011 2011 2005 2006 2008 2008 2009 2010* -10.00 Balance of Payments Foreign Exchange Reserves Billion USD 100 80 60 40 20 - 5

Executive Summary � The economy continues to chart strong growth which recorded at 6.1%, much higher than previous year (4.55) for the whole 2010. � On the price level, CPI inflation reached the level of 7.02% (yoy) for January 2010. mainly due to further steep increases in volatile food prices, and in addition to the escalating prices for globally-traded commodities. � External vulnerabilities continue to decline as Indonesia builds-up comfortable buffers on the back of continuing surge of capital inflows. BoP figrues released earlier this week shows that for the whole 2010, the overall balance of payments surplus reached US$30.3 billion, increased considerably from the surplus in the preceeding year. The capital & financial account posted a surplus of US$26,2 billion, more than five fold of surplus in the previous year, whereas current account recorded a smaller surplus. � Supported by continued positive international perception, improved business environment, macroeconomic stability and higher credit ratings, FDI is expected to continue accelerating. Cumulatively, for 2010 the total investment realization figure was recorded at Rp208.5 trillion, a 54.2% increase compared to the 2009 figure and exceeded by 30.2% of 2010 original target at Rp160.1 trillion. � � On the fiscal front, Indonesia continue to perform a prudent fiscal management in 2011, with strong commitment to fiscal On the fiscal front, Indonesia continue to perform a prudent fiscal management in 2011, with strong commitment to fiscal consolidation, aiming on: • continue declining debt-to-GDP ratio • diversifying government debt profile, • reducing funding reliance on international capital market. � On the financial sector, Financial System Stability had been maintained as indicated by the Financial Stability Index which were well below the treshold of 2 (1.74 on end of 2010). � Against this backdrop and as an anticipatory measure to curb the renewed onset of increased inflation expectations, the Central Bank at its February Board of Governors Meeting in 2011, decided to increase the BI Rate by 25 basis points (bps) or 0.25% to 6.75%. The rising inflation expectations call for an appropriate response to avert future inflationary pressures, and with the implementation of monetary and macro prudential policy mix and Government actions to bring down high food commodity prices, inflation is believed can be curbed in line with the target of 5% � 1% for 2011 for 2011 and 4.5% � 1% for 2012. 6

Improving International Perception: Acknowledged by Rating Agencies Resilient economy, which impressively navigates through the global crisis and continued confidence in economic outlook, the Republic continued to receive good reviews which already upgraded by Moody’s in the beginning of 2011 � Moody’s Investors Service (January 17, 2010): upgraded Republic of Indonesia’s foreign and local-currency bond ratings to Ba1 with stable outlook. This follows Moody’s release last December which placed the ratings on a review for possible upgrade. The key factors supporting this action were (1) economic resilience which accompanied by sustained macroeconomic balance; (2) Improved government’s debt position and central bank’s foreign currency reserve adequacy; and (3) Improved prospects for foreign direct investment inflows which expected to fortify Indonesia’s external position and economic outlook. � Japan Credit Rating Agency, Ltd (July 13, 2010): upgraded Indonesia's sovereign rating to Investment Grade from BB+ to BBB- with stable outlook. The first upgrade to reach investment grade in the last 13 years reflects enhanced political and social stability, sustainable economic growth , alleviated public debt burden as a result of prudent fiscal management, reinforced resilience to external shocks stemming from the foreign reserves accumulation and an improved capacity for external debt management and efforts made by the current administration to outline the framework to deal with structural issues such as infrastructure development. the current administration to outline the framework to deal with structural issues such as infrastructure development. � S & P (March 12, 2010): upgraded Indonesia’s long-term foreign currency rating to BB from BB- with positive outlook which indicates that Indonesia has big possibility to be upgraded within a year, even maybe faster. The main factor supporting this decision is steadily improving debt metrics and growing foreign currency reserves which reduced vulnerability to shock with continued cautious fiscal management. � Fitch Ratings (January 25, 2010): upgraded the Republic of Indonesia’s sovereign rating to ‘BB+’ from ‘BB’ with stable outlook The rating action reflects Indonesia’s relative resilience to the severe global financial stress test of 2008-2009 which has been underpinned by continued improvements in the country’s public finances. 7

Sovereign Rating History S&P upgraded from BB- with A- 11 11 A3 11 a Stable Outlook to BB with a Positive Outlook in March 2010 10 Baa1 10 BBB+ 10 Diminished likelihood that the Government Fitch’s Rating Upgrade on will seek additional debt rescheduling February 2008 Rating History of Indo Fitch’s Rating 9 Baa2 BBB 9 9 Upgrade on Jan-10 Sound record of fiscal onesia 1992-2010 management BBB- Baa3 8 8 8 Ba1 BB+ 7 7 7 d Fitch) (Mood ndonesia 1994-2010 Ba2 BB 6 6 6 (S&P and Fit oody's) Rating History of Indone Ba3 BB- 5 5 5 Moody’s upgrade to Ba1 B1 B+ 4 4 4 in January 17, 2011 Economic crisis in Asia B2 3 3 B 3 B3 B- 2 2 2 Moody’s upgraded in Jun- 10 with a Positive Outlook, Caa1 after a one-notch upgrade 1 CCC+ 1 1 in September 2009 Caa2 CCC 0 0 0 Jan-92 Jan-92 Jan-92 Dec-92 Dec-93 Oct-94 Dec-94 Dec-95 Jul-96 Dec-96 Dec-97 Dec-98 Dec-99 May-00 Dec-00 Dec-00 Dec-01 Dec-02 Mar-03 Mar-03 Dec-03 Dec-04 Jun-05 Dec-05 Dec-05 Dec-06 Dec-07 Oct-08 Dec-08 Dec-09 Dec-09 Dec-10 Sep-98 Sep-07 Apr-94 Aug-97 S&P Moody's Fitch

Improving International Perception: Significant Raise in Perception Indices Conducive business climate improvement to support optimism in FDI inflows � World Economic Forum – The Global Competitiveness Report 2010 – 2011 (September 15, 2010) reported that Indonesia posts an impressive gain of 10 places, mainly driven by a healthier macroeconomic environment and improved education indictors. Indonesia considered to successfully maintain a relatively healthy macroeconomic environment throughout the crisis. While most other countries saw their budget deficits surge, Indonesia kept its deficit under control” � The IMD Competitive Center (May 19, 2010) reports a major improvement in Indonesia's global competitiveness, with Indonesia moving up from 42 nd to 35 nd place among a total of 57 major nations surveyed worldwide. For Indonesia, the improvement in 2010 has been achieved through significant gains in economic performance, followed by government efficiency and infrastructure improvement. � OECD (April 2, 2010) : upgraded Indonesia’s Credit Risk Classification (CRC) from category 5 to 4 . This upgrade was a timely acknowledgement by the developed economies of the consistent economic improvement. This upgrade would significantly improve Indonesia’s credit standing in front of the creditor countries especially the credit exports creditor countries which eventually would decrease the debt burden. � Currently, Indonesia is already part of the “Enhanced Engagement” programme of the OECD alongside other BRICs, with a view to possible membership 9

Preserved Macroeconomic Stability