Governor of Bank Indonesia Regional Inflation Control Report National Coordination Meeting VI of TPID, Jakarta 27 May 2015 The honorable: His Excellency President of the Republic of Indonesia Ministers of the Working Cabinet Governors of Provinces Mayors/Heads of Districts Distinguished invitees and ladies and gentlemen < Slide 1-2 > Assalamu alaikum warahmatullahi wabarakatuh, Good morning and may God bless us all, A. Opening 1. Praise God the Almighty for all blessings so that we are given the opportunity to gather in the Sixth National Coordination Meeting of Regional Inflation Control Team (TPID) in 2015. 2. It is an honor for all of us that His Excellency President of the Republic of Indonesia may attend this event together with us, not only to open but also to chair this National Coordination Meeting. Out of the five previously held TPID National Coordination Meetings, it is only in this sixth meeting that the President of the Republic of Indonesia is humbly willing to chair it directly. Therefore, we express our deepest appreciation to the President. 1
3. We would also like to express our appreciation to all Heads of Regions and invitees who have provided their time to attend this highest coordination forum on inflation control, a forum aiming to strengthen the synergy between the Central and Regional Governments to formulate solutions to various issues and challenges of price stabilization in regions. B. Development of Inflation and TPID < Slide 3 > < Slide 4 5 > 4. We have passed 2014 with a relatively controlled inflation at a single digit of 8.36%. We consider this achievement as a success because amidst various challenges, one of which is increasing inflation pressure post-energy subsidy reform policy adopted at the end of 2014, we were able to maintain inflation rate at a rate slightly lower than 2013, which reached 8.38%. Decreasing inflation rate even continued in the first quarter of 2015 to 6.39%. Although inflation rate in April 2015 slightly increased to 6.79% (yoy), such increase resulted more from the continued impact of oil fuel price increase at the end of March 2015. 5. In an effort to promote coordination between Bank Indonesia and the Government, both on the central and regional levels, we are optimistic to successfully mitigate different risks, so that we can reach inflation target of 4%±1% from 2015 to 2017 and 3.5%±1% in 2018. < Slide 6 > 6. On the central level, we highly appreciate the energy subsidy reform policy adopted by the Government. This policy will be effective to reduce inflation surge frequently occurring every time the government adjusts oil fuel price amidst fiscal pressure. 2
In addition, this policy provides an extra large fiscal room to be used to build various infrastructures to allow increasing competitiveness and reducing inflation pressure. We also highly appreciate the Government s policy response to minimize continued and social impacts of subsidized oil fuel price increase through tariff control of land transportation, management of major basic commodities distribution, and assistance for poor people. < Slide 7 > 7. On the regional level, different policy innovations play a big role in inflation control. TPID National Working Group highlights that many policies and activities of TPID in various regions are aimed at an effort to preserve and implement the following program (called 4K in Indonesian): (i) Availability of goods and services; (ii) Price affordability; (iii) Smooth distribution; and (iv) Effective communication to manage public perception of prices. As well known, such program is one of mutual commitments produced in the Fifth National Coordination Meeting of TPID in 2014. < Slide 8 > 8. We can report that the achievements strongly relate to the commitment, hard work, and support of 432 TPID established as of today. The increasing existence of TPID is expected to help solve different regional issues frequently hindering price stability. < Slide 9 > C. Future Challenges and Necessary Efforts < Slide 10 > 9. Going forward, challenges to achieve inflation target determined by the Government at 4±1% from 2015 to 2017 and 3.5%±1% in 2018 will remain huge. 3
< Slide 11 > 10. There are many structural obstacles in the real sector, which frequently result in price instability. First, domestic production capacity is limited, primarily strategic food commodities, due to low productivity and decreasing land area. Second, rupiah exchange rate is susceptible to external turbulences owing to our high dependence on natural resources based exports and raw material imports. Third, food production is susceptible to supply disruption due to the increasingly difficult climate change anticipation. Fourth, national energy dependence on oil fuel and LPG imports remain high. Fifth, inefficient markets as reflected on long distribution chain dominated by a few big actors. Sixth, connectivity between regions is still weak. 11. Besides different structural challenges, inflation is highly affected by unique regional characteristics, which oftentimes require a separate management. However, the characteristics of a region may also relate to another region making a synergy necessary between regions, on the regional and central levels, and on the central level in their management. In connection therewith, an intensive and participatory coordination is necessary in various sectors, between ministries, involving the central and regional governments, including through TPI and TPID forums. < Slide 12 > 12. In this connection, the Coordinating Ministry of Economic Affairs, Ministry of Home Affairs, and Bank Indonesia, under the TPID National Working Group, have a central role in strengthening policy coordination through implementation of various programs; among others are (i) development of the Centre of National Strategic Food Price 4
Information and (ii) efforts to expand market access to farmers by strengthening cooperation between regions. We expect the programs above may continue and expand to all regions. < Slide 13 > 13. We warmly welcome all of the Government s agenda in the future economic development, primarily to realize food sovereignty, through acceleration of supporting infrastructure development in agriculture. Efforts to reach food sovereignty closely relate to inflation control. In line therewith, the Fourth TPID National Coordination Meeting in 2015 took the theme Optimization of Regional Government s Roles in Supporting Price Stability through Infrastructure Development Acceleration and Business Administration in Regions. 14. In the context of regional role optimization, the TPID National Working Group highly appreciates TPID initiatives in almost all regions which have developed regional inflation control road maps. The road maps have a strategic role in ensuring sustainable improvement of various structural issues described above and may be used as a reference in building a synergy between the central and regional policies. < Slide 14 > 15. Following the theme, we highly expect in today s forum to be able to formulate synergic and concrete steps and strengthen the national commitment to realize food sovereignty through infrastructure development acceleration and food business administration improvement in regions. D. Announcement of TPID Award Winners and Closing 5
< Slide 15-16 > 16. In this forum, TPID National Working Group will give The Best TPID awards to regions having TPID with the best work performance in supporting price stability achievement. Similar to the previous four National Coordination Meetings, the evaluation criteria for The Best TPID awards are based on two aspects, namely process aspect measuring intensity and quality of TPID activities and output aspect measuring the level and volatility of inflation in the relevant region in 2014. 17. In line with the increasing number of TPID in districts/municipals, which are not the basis for national inflation calculation, as commenced in the last year s National Coordination Meeting, in this year we will also give awards to the best TPID in the relevant districts/municipals. Such award is called Achiever TPID whose evaluation criteria are based only on the process aspect because the relevant districts/municipals do not have any inflation rate. 18. The evaluation and determination of The Best TPID and Achiever TPID are conducted by an Evaluation Team consisting of members of TPID National Working Group and experts coming from academicians. Winners are classified in three Regions, namely Sumatra, Java, and the Eastern Part of Indonesia, and winners on the province and district/municipal level are differed. 19. Winners will be announced through a short movie to be displayed after we complete this report. After such winner announcement, we would like to invite His Excellency to present the awards to the Best TPID and Achiever TPID in 2014, and at the same time open and chair the Sixth TPID National Working Meeting in 2015. 20. We conclude our report. We appreciate the attention of His Excellency and all attendees. 6
Wabillahi taufik wal hidayah. Wassalamu alaikum warahmatullahi wabarakatuh. 7