Indonesian

Economic Outlook
2015
FADHIL HASAN
INSTITUTE FOR DEVELOPMENT OF ECONOMICS AND FINANCE (INDEF)
 New government, new initiative: Nawa Cita
Theme is "Strong Development, Inclusive and Sustainable"

NATURAL RESOURCES/ ENVIRONTMENTAL

ECONOMICS Strengthening food security, energy and water
DEVELOPMENT Accelerating the marine development
AGENDA 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 distribution
Increase 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
Achieving energy security
Development of infrastructures Baseline 2014 Target 2019
Baseline 2014 Target 2019 Generating capacity (GW) 50.7 86.6
Construction of reservoirs (unit) 21 49 Electrification ratio (%) 81.5 96.6
Construction of new roads (km) 1202 2650 Crude oil (thousand barrels oil/day equal to oil) 818 700
Natural gas (thousand barrels oil/day equal to oil) 1224 1295
Construction of highways (km) 807 1000
DMO (Domestic Market Obligation) of natural gas (%) 53 64
Railway track (km) 5434 8692 Gas pipelines (km) 11960 18322
Number of airports (unit) 237 252 Construction of refinery (unit) 1

Achieving food self-sufficiency Development maritime sectors

Baseline 2014 Target 2019 Baseline 2014 Target 2019
Rice (million tonnes) 70.6 82 Construction of ports to support the marine highway (unit) 24
Corn (million tonnes) 19.13 24.1 The development of ferry ports (unit) 210 270
Soybean (million tonnes) 0.92 2.6 The development of of fishing ports (unit) 21 24
Sugar (million tonnes) 2.6 3.8 Pioneer ships (unit) 50 104
Beef (thousand tonnes) 452.7 755.1 Fishery production (million tonnes) 22.4 40-50
Fish production (million tonnes) 12.4 18.8 Increasing the area of marine conservation (million Ha) 15.7 20

Source:RPJMN 2015-2019
"Nine Priority Agenda (Nawa Cita) Jokowi-JK
Improvement Action Program to economic self-
reliance

Build food sovereignty based on

agribusiness
Agriculture poverty
alleviation and support
the re-generation of
farmers through: Agrarian Reform
Control policy on food 100 villages sovereign seed Land reform by delivery 9 Creating a special bank
imports through the To enhance the capacity of
million hectares of land for agriculture, Small
eradication of the farmers, the active Ownership of agricultural land and Medium Enterprises
involvement of women into 2 acres per family farmer
"import mafia" and the opening of the 1 and Cooperatives
Build irrigation, dams, roads,
million dry land outside Java
transportation and markets
and Bali
Increased development and
rural economic attractivities
SBY & Jokowi
SBY JOKOWI
Indicators
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
Source:RPJMN 2015-2019

Need goverment intervention

Need huge budgetfiscal expansion
 The investment needs (trillion rupiah)
6,947
5,978
5,188
4,500
3,945
5,789 Public
5,041 Total 2015-2019
Government
4,425 Rp26,557.9 T
3,827
3,452

673 763 937 1,158 4,023.8

493 15%

2015 2016 2017 2018 2019

Government
Source:RPJMN 2015-2019
Public

22,534.1
85%
Additional State Capital Investment
(Rp73 trillion)
Food self-sufficiency
Infrastructure &
maritime
Aerospace industry
Defense industry
 Major change in government budget
Increase budget
allocation for
infrastructure,
agriculture, energy
and maritime sectors

Source: Kata Data, 19 Nov 2014

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 1,221
Source: 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
Projection
GDP (%,yoy) 2013 2014
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
18
Corporate foreign debt to GDP

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.

Sumber: REO, 2014 (olah)

 Result from stress test IMF if there is shock
19
Percentage of corporate debt if there is external shock
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.

Source: IMF, 2014

 Normalization cycle Normalisasi
20
Normalization scenario and declining in commodity
prices US economy recovery is a
trade off for emerging
economies slowing down.

Siklus Interaksi
Ekonomi yang
Saling
terintegrasi
Current account deficit
2014
Keterangan
Q1* Q2* Q3** Total
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
Current account deficit is C. Pendapatan Primer -6,360.98 -7,193.27 -7,053.26 -20,607.51
still large (3.07% of GDP) in D. Pendapatan Sekunder 1,084.82 1,539.96 1,193.37 3,818.15
third quarter 2014. 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
Service account deficit is - Aset -5,895.22 -2,682.12 -3,468.04 -12,045.38
USD 7.67 miliar. - 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
Income account defisit is 2. Investasi Portofolio 8,702.84 8,316.91 7,089.52 24,109.27
USD 16.78 miliar. 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 5.73 6.06 6.32
Pemerintah
- Transaksi Berjalan (% PDB) -2.05 -4.06 -3.07
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.