Ministry of Finance. Jakarta, 23 September Ministry of Finance, Republic of Indonesia

Transcription

1 Ministry of Finance Jakarta, 23 September 2014

2 Background: Past Economic Cycle

3 15,0 10,0 Indonesia has experienced various positive and negative growth profiles 1975 Pertamina Crisis st Oil Boom nd Oil Boom Asian Financial Crisis Golden Period: Indonesia as East Asia Tiger Global Saving Glut Commodity Price Volatility China s Moderation Advanced Economies Rebalancing What s next?? 5,0 Average 70-97: 7.1% Average 05-12: 5,9% 0, ,0-10,0 Global Oil Shock Indonesia s 1 st structural reform Period 2008 Global Financial Crisis End of Commodity Boom -15,0 3 steps of new era policy: stabilization, Rehabilitation, Reconstruction, UU PMA, Deregulation and high industrialization period: Banking, Trade, Investment, Taxation, Industries Industry become priority sector import substitution and export promotion Government budget reform Greater local autonomy Reformation on regulation of the banking and financial sector C r I s i s 3

4 2013 Turbulence: Creating a stable economic condition amidst global uncertainties

5 The 2013 turbulence in global financial market is part of a wider set of events caused by ongoing global economic and policy change Actual Government Bond Yield (10Y) Issue of The Fed Tapering 4,5 4 3, Commodity Price Index End of commodity Boom Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan Jan-09 Agust-09 Mar-10 Okt-10 Mei-11 Des-11 Jul-12 Feb-13 Sep-13 INDO 10Y YIELD PHIL 10Y YIELD UST 10Y YIELD (rhs) 2,5 2 1,5 1 Commodity Price Index is calculated based on average commodity prices (brent, WTI, allumunium, cooper,gold and palm oil) Source: Bloomberg, Staff Calculation Expectation of the end of unconventional monetary policy in advanced economy together with the weakening commodity prices have triggered volatility spikes in the global financial market. The era of commodity boom has ended affecting resource export oriented economies. The increasing pressures have weighted many emerging economies. Stabilization policy is becoming the short-term key objective for many governments, including Indonesia 5

6 Billions Most emerging economies, including Indonesia, experienced pressures in their external balance IndonesiaTrade Balance (US billion) (10) (20) Indonesia Balance of Payment (US billion) Q1 Q2 Q3 Q4 Q1 Q2 Q3 (30) Q1 Q2 Q3 Q4 Q1 Q2 Q Non Oil&Gas Oil&Gas Total Cap and Fin account (LHS) Overall Balance (LHS) Current Account (LHS) 3Q 2013 Brazil Indonesia India South Africa Turkey GDP (% yoy) Inflation (% yoy) Unemployment Rate (%) Fiscal Balance (% GDP) (2.5) (1.9) (7.0) (5.2) (3.0) Current Account Balance (% GDP) Exchange Rate (% Change QtoQ) (3.7) (3.8) (1.2) (6.8) (7.7) (0.7) (12.3) (5.2) (2.03) (4.5) International Reserve , ,7 130,7 Debt (% GDP) Source: IMF December 2013, World Bank, EIU, Ministry of Finance, BPS, respective countries office of statistics Note: Data above for 3Q2013 except for fiscal balance, exchange rate and debt which are for Similar challenges for emerging economies Weak global demand and negative capital movement have impacted emerging economies. The end of commodity boom period has also affected exports performance With capital reversal risk is emerging, the sustainability of CAD needs to be ensured to avoid risks to the economy. Large fiscal deficit has also created additional challenge to many emerging economies. There are 5 countries hit most severely by the 2013 turmoil coined as Fragile Five. 6

7 Indonesia experienced increasing pressures in the financial market in the mid of Indonesian Rupiah and Capital Market Performance 9000 Jan-13 Feb-13 Mar-13 Apr-13 Mei-13 Jun-13 Jul-13 Agust- 13 Indonesia Rupiah Jakarta Composit Index (RHS) Sep-13 Okt In the period of June Sept IDR depreciate 14%, Jakarta Composite Index fell 15%. Capital market outflow reached IDR 28,67 T in Stock Market and outflow in bond market reached IDR 7,52 T. Indonesian Bond Yield Increased more than 200bps Indonesian Bond Yield Yield 5Y Yield 10Y Net Foreign Buying in Jakarta Stock Market

8 To cope with the financial turmoil, the Indonesian authorities introduced coordinated policy responses Structural Reforms Continuing reform on energy subsidy: Fuel price adjustment, Electricity tariff increase and Mandatory use of Biodiesel Enacting land acquisition bill Improving imports system from quota to tariff system Introducing and implementing a more integrated infrastructure development plan, debottlenecking and streamlining permit process Simplifying regulations for small and medium enterprise Requiring minimum wage to be based on a combination of minimum living cost, productivity and economic condition to provide more reasonable wage structure for both parties Pre-emptive Monetary Policy Mix Boldly increasing the policy rate Allowing more flexibility on the movement of rupiah exchange rate in line with its fundamentals Launching macro-prudential measures Deepening the financial market Actively communicating the policies with the stakeholders Strengthening co-operation in regional financial safety net Fiscal Policy Providing additional budget for social protection: Conditional and Unconditional Cash Transfer, Poor Students Aid, and Additional allocation of rice for the poor Providing tax breaks for specific industries (labor intensive & export oriented industries) to prevent layoff Imposing additional tax for luxurious and branded products to limit unproductive imports goods and to induce domestic goods demand. Relaxing import tax for import goods to be used for exports Pressures in the financial market is softening Inflation is trending down Trade balance is returning to surplus Current account deficit is narrowing GDP growth is better than expected Foreign Direct Investment remains solid 8 8

9 2012-j F M A M J J A S O N D 2013-J F M A M J J A S O N D These efforts were evidently quite successful in creating a stable economic condition amidst global uncertainties Indonesia Trade Balance (billion USD) MIGAS NONMIGAS TOTAL IDR Spot and NDF IDR Spot IDR NDF 1M Source: BPS %,yoy 10,0 9,0 8,0 7,0 6,0 5,0 3,65 4,0 3,0 3,97 Sumber: Badan Pusat Statistik Perkembangan Inflation Inflasi Rate Umum 4,45 4,56 5,31 4,31 4,30 5,90 5,47 5,90 8,61 8,79 8,40 8,38 Goverment and central bank (BI) policies were quite effective in turning the trade balance into surplus in the last 3 months of 2013 (Oct US$0,03 bil, Nov US$0,79 bil and Dec US$1,51 bil). In December 2013: inflation reached 0,54% (mtm) or 8,38% (yoy), inflation pressure has slowed down after the subsidized fuel price adjustment in mid IDR movement has shown convergence. Singapore s Source: Bloomberg financial market has discontinued the use of NDF for USD/IDR Price and decided to use Bank Indonesia s JISDOR as reference. BI s FX Swap Facilities have also helped to reduce the local forex market s overreliance on the spot market. 9 9

10 The Present: Navigating To The New Global Equilibrium

11 After a series of unconventional monetary policies and the commodity boom, we re returning to a new equilibrium Start of unconventional policy period 300 Actual Government Bond Yield (10Y) Rebalancing Period Source: Bloomberg 4,5 Heading to New Equilibrium 50 2 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan ,5 3 2,5 2 1, Commodity Price Index End of Commodity Boom Source: Bloomberg 70 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 INDO 10Y YIELD PHIL 10Y YIELD UST 10Y YIELD (rhs) The sudden global volatility in the second half of 2013 emphasized the condition that we are now no longer in the abnormal circumstances and an artificial growth condition due to unconventional monetary policy in advanced economies. The new challenge, for Indonesia, is to navigate the economy to move through the transition as smoothly as possible. The process still continues in 2014 and it has become the key factor for the Indonesian Government in designing both short and medium term policies. 11

12 Both Indonesian stock market and Rupiah Exchange Rate have been performing quite well, supported by substantial capital inflow Financial Market Indicator Turbulence Period IDR IHSG IDR Appreciation Positive trend on Stock Market Index Source: Bloomberg Stock index shows a strengthening trends followed by appreciating exchange rate. In the second semester of 2014, there is still a risk of weakening (seasonal pattern at the end of the year) Indonesia Filipina Thailand Hong Kong Singapura Tiongkok Korea Malaysia Amerika Serikat Inggris Jepang Stock Index Movement (%ytd) -0,89% -0,99% -5,96% 5,76% 5,06% 4,91% 2,73% 0,52% 19,53% 18,41% 17,73% Data as per Sept 5 th % -5% 0% 5% 10% 15% 20% 25% Source: Bloomberg Indonesia Malaysia India Thailand Filipina Singapura Jepang Inggris China Euro Exchange Rate Appreciation (%ytd) -6,12% depreciation -1,41% -1,43% 0,71% 0,21% 2,26% 2,19% 1,69% 3,44% 2,85% Data as per Sept 5 th ,0% -6,0% -4,0% -2,0% 0,0% 2,0% 4,0% Source: Bloomberg 12

13 1Y 2Y 3Y 4Y 5Y 6Y 7Y 8Y 9Y 10Y 15Y 20Y 30Y Investor confidence in the financial market continues to improve along with strong stock market performance Goverment Bond Yield (%) 9,5 % Y 5Y Source: Bloomberg Moving to New Equilibrium 9 8,5 8 7,5 7 6,5 31 Des Mar Jul 14 5 Sep 14 Source: Bloomberg IDR Trillion Net Foreign Buying SBN SBI Stock Total Compared to 2013, SUN yield tend to be lower, Yield SUN 10Y 2 nd Jan 2014: 8,57% Sept 5 th 2014 :7,96%, SUN Yield 5Y : 2 nd Jan ,09% Sept 5 th 4: 7,84% Positive Capital Inflow in the last 6 months Source: Bloomberg 13

14 2012-J F M A M J J A S O N D 2013-J F M A M J J A S O N D 2014-J F M A M J J Juta USD Up to July, 2014 trade balance was still deficit but it is expected to rebound in H MIGAS NONMIGAS TOTAL Trade Balance (Monthly) January to July 2014 trade balance deficit reached $1,01 billion. 60,00% 50,00% 40,00% 30,00% 20,00% 10,00% Manufacturing Export Trend (3 Month Moving Average YoY) surplus of US$ 123,7 million in July Source: BPS Positive trend in the last 3 Months 0,00% Jan-10-10,00% Sep-10 Mei-11 Jan-12 Sep-12 Mei-13 Jan-14 Export are still pressured by the weak MTP, the impact of short term policies on Raw Mineral, and the declining in export commodity prices that encourage wait & see behavior for exporters. Slowing imports in line with reduced demand for input material for production and export activities. Export performance for the second half of 2014 projected to improve, especially in manufacturing. Mineral exports start to increase in August 2014 with the success of renegotiation on mineral contract with major mining companies -20,00% Source: BPS, Staff Calculation 14

15 Inflation remains fundamentally under control Inflasi Berdasarkan Komponen (persen, yoy) Source: BPS Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Inti (LHS) Harga Diatur Pemerintah (RHS) Harga Bergejolak (RHS) August inflation driven by seasonal factors, such as educational spending, idul fitri period and government policy to increase electricity tariff. Some factors potentially might put pressure on inflation are El Nino that expected disrupt food supply and energy policy plans. 15

16 7,0 6,0 5,0 4,0 3,0 2,0 1,0 0,0 GDP grew by 5,12% (yoy) in Q2 or 5,2% (yoy) in H Private consumption and Investment boosted the GDP growth while Govt. consumption, export & import contracted... GDP Growth (yoy,%) 6,3 6,3 6,2 6,2 6,0 5,8 5,6 5,7 5,2 5,1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2012* 2013** 2014*** GDP by Sector Q1 Q2 Q3 Q4 S1 S2 Q1 Q2 S1 GDP 6,0 5,8 5,6 5,7 5,9 5,7 5,2 5,1 5,2 Agriculture 3,7 3,3 3,3 3,8 3,5 3,5 3,2 3,4 3,3 Mining 0,1-0,6 2,0 3,9-0,3 2,9-0,3-0,2-0,2 Manufacature 6,0 6,0 5,0 5,3 6,0 5,2 5,1 5,0 5,1 Electricity, water and gas 7,9 4,0 3,8 6,6 5,9 5,2 6,3 5,8 6,0 Construction 6,8 6,6 6,2 6,7 6,7 6,5 6,5 6,6 6,6 Trade 6,5 6,4 6,1 4,8 6,4 5,5 4,8 4,5 4,7 Transportation 9,6 10,9 9,9 10,3 10,3 10,1 10,2 9,5 9,9 Finance 8,2 7,7 7,6 6,8 8,0 7,2 6,2 6,2 6,2 Other services 6,5 4,5 5,6 5,3 5,5 5,4 5,7 5,7 5,7 Source: BPS Growth Contribution Q1 Q2 Q3 Q4 S1 S2 Q1 Q2 S1 Q1 Q2 Q3 Q4 S1 S2 Q1 Q2 S1 GDP 6,0 5,8 5,6 5,7 5,9 5,7 5,2 5,1 5,2 6,0 5,8 5,6 5,7 5,9 5,7 5,2 5,1 5,2 Private Cons 5,2 5,1 5,5 5,3 5,2 5,4 5,6 5,6 5,6 2,9 2,8 3,0 2,9 2,9 3,0 3,1 3,0 3,1 Gov. Cons 0,4 2,2 8,9 6,4 1,4 7,5 3,6-0,7 1,1 0,0 0,2 0,7 0,7 0,1 0,7 0,2-0,1 0,1 Investment 5,5 4,5 4,5 4,4 5,0 4,5 5,1 4,5 4,8 1,3 1,1 1,1 1,1 1,2 1,1 1,2 1,1 1,2 Export 3,6 4,8 5,2 7,4 4,2 6,4-0,4-1,0-0,7 1,7 2,3 2,4 3,7 2,0 3,0-0,2-0,5-0,3 Import 0,0 0,7 5,1-0,6 0,3 2,1-0,7-5,0-3,0 0,0 0,3 1,8-0,2 0,1 0,8-0,3-1,9-1,1 16

17 Thousands 15000, , ,00 0, , ,00 Source: Bank Indonesia Current account deficit is more managable, with the BOP outlook is even more encouraging... (US$ mn) Gradual Recovery of the Current Account Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q And Rebound in Financial Account Capital Flows 4000, ,00 0, , , , , , ,00 Goods Income Services Curr. Trsfs Current Account Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q The positive trend of Balance of Payment continues in Q BOP has been surplus in the last 3 quarters. The current account deficit has widened to US$9.1bn (4.27% GDP) in Q but is lower than Q at US$10,1bn (4.47% GDP) Portfolio investment continues its positive trend, underscored by improvements in economic fundamentals that attracted foreign investors into the country Foreign Reserve reached US$111,2 billion at the end of August ,00 30,00 25,00 20,00 15,00 10,00 5,00 0,00-5,00-10,00-15,00 Long Run Overall Healthy BoP Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Source: Bank Indonesia Portfolio Other Investment FDI Financial Account Capital & Financial Account Overall Balance Source: Bank Indonesia Current Account Foreign Exchange Reserves 17

18 Macroeconomic Assumptions have been adjusted to reflect recent economic developments Macroeconomic Assumptions Revised Budget Assumptions 2014 revised budget 2014 Outlook 2015 Proposed Budget Economic growth Lower global growth outlook leads to slower domestic growth, mainly due to exports and capital flows Impact of government s effort in easing Current Account pressure and maintaining stability Growth (%) Inflation (%) Exchange Rate (IDR/US$) 11,600 11,700 11,900 Interest Rate (3 month Govt Bond, %) ICP (US$/barrel) Oil and Gas Lifting a. Oil lifting (Mil bbl/day) b. Gas lifting (Mil bbl/day eopd) Inflation rate downward trend Fiscal, Monetary, and Real Sector policies coordination among Government and Central Bank to reduce inflationary pressures and maintain a conducive macroeconomic condition The increase of agriculture productivity will allow food supply sufficiency and avoid commodity and food price fluctuations Exchange rate and interest rate reflect to the global and domestic financial market Liquidity tightening and tapering policy in US Risk of reduced capital flows to EMEs Competition and liquidity tightening resulted in the hike in interest rates, even within domestic Indonesian economy Oil and gas lifting will be influence by technical issues and production delays in Cepu and other new oil blocks 18

19 The Future: Remaining vigilant with risks from global and domestic

20 There are some Global Risks that need to be closely watched... China economic rebalancing Risk to growth of Ems (India, Brazil, etc.) ASEAN growth moderation Emerging Market Development Political instability in middle east & Ukraine Europe monetary easing Advanced Economies Policy Commodity Prices Commodity price volatility Global demand slowdown Climate change End of Unconventional Monetary Policy (Tapering off ) Japan Economic Reform Policy Potential rise in Fed Fund Rate. 20

21 With natural resources, productive population age and educated labor, Indonesia has the potential to take off Large Population, young and vibrant workforce Abundant Natural Resources Stable and Strong Macroeconomic Performance Largest Economy in South East Asia 4th most populous country in the World Demographic Dividend / increasing working age ratio Growing Middle Income Class Diversified Culture Coal, Oil, natural gas, Minerals Agriculture Commodities: CPO, Rubber Fertile soil and rich ocean Economic growth at around 5-6%, with low growth volatility Increasing infrastructure investment Increasing Direct Investment Manageable Inflation Rate Prudent Fiscal Management Fiscal Deficit maintained 3% PDB Decreasing Debt to GDP Ratio 21

22 yet, some challenges need to be addressed Strengthening Domestic Economy Resilience Improving Productivity and Competitiveness Creating prudent Fiscal policy Improving social welfare and inequality Creating Financial sector stability Reducing unnecessary imports while improving the quality of exports. Reducing dependencies on raw commodity exports Improving production capacity & fixing bottlenecks Providing adequate infrastructure Developing high value added domestic industries Improving Trade performance and domestic product competitiveness Improving Human Capital, Technology Development and Innovation Improving Fiscal Space, for fiscal maneuver and improving infrastructure spending Expanding tax base Implementing measures to ensure Quality of Spending Improving subsidy framework Improving people purchasing Power Alleviating poverty and reducing unemployment Providing suitable access to health and education service for society Improving income distribution 22

23 Coordination Framework and Fiscal Buffer To Prevent and Mitigate The Risk

24 Comprehensive stabilization framework to pro-actively manage pressures on Financial Sector is in place Implementing Crisis Management Protocol Implementing Bond Stabilization Framework Enhancing coordination between government institutions and continuous dialogue with market participants Crisis Management Protocol The FKSSK, Consists of Minister of Finance, BI Governor, Head of Indonesian FSA and Head of Indonesian Deposit Insurance Corporation, manages the Nationwide Crisis Management Protocol (CMP) Framework as guidance and procedures for national crisis prevention and mitigation measures. The nationwide CMP incorporates the Exchange Rate, Banking, Non-Bank Financial Institution, Capital Market, Government Bonds Market (SBN), and Fiscal CMPs. Coordination Meeting is conducted regularly to discuss and assess the current level of Financial System Stability and current issues related to the financial system FKSSK has conducted two crisis simulations: Full Dress Simulation (ministerial level) and activation of pre-emptive instrument (CMIM) at technical level Fiscal Buffers to Prevent and Mitigate Crisis 1 2 Swap facility arrangements based on international cooperation & Deferred drawdown option facilities Specific articles in the State Budget Law that provide flexibility for Government to take quick mitigation action if necessary, with Parliament approval that has to be given within 24 hours Bond Stabilization Framework DMO Budget SOE Budget Other Gov t Budget Buyback Funds Related SOEs (min. Alert level) KUN (State s General Cash) (min. Alert level) PIP Investment Funds (min. Alert Level) SAL (min. Crisis Level) 24 Buyback of government bonds by the DMO from the state budget Potential purchase of government bonds by State Owned Enterprises Potential purchase of government bonds by the Treasury Office using the State s General Cash (KUN) Potential purchase of government bonds by the Indonesia Investment Agency Purchase of government bonds using the accumulated cash surplus (SAL). Parliament approval is required The Government also has alternative financing source from the Hajj fund (Managed by The Ministry of Religious Affairs) and from the Fund from the newly established Social Security Agency (BPJS) 24

25 Indonesia s Crisis Management Protocol under FKSSK 25

26 The Coordination Forum for Financial System Stability (FKSSK) 1. Responsibilities and authorities of FKSSK: performing exchange of data and information; undertaking financial system stability (FSS) evaluation; conducting FKSSK Meeting; determining FSS status; making recommendations to their respective members to take an action and/or establish a policy for maintaining FSS; establishing and implementing policies required for prevention and handling of crisis in the financial system according to their respective authority; and communicating with the public and other stakeholders. 2. FKSSK Activities Coordination Meeting of the Forum is conducted regularly To test and examine the CMP effectiveness and its weaknesses/ loopholes, FKSSK has conducted a number of simulations Establishment of Working Groups to address some strategic issues Development of Crisis Binder

27 Thank You